Several investors are negotiating to purchase a business. To finance the purchase,they make a loan from a major bank and pledge the assets of the company that they want to buy as collateral for the loan. This is known as a
A) trust buyout.
B) stock ownership program.
C) noncompetitors buyout.
D) leveraged buyout.
E) selling memorandum.

Question

Quizplus · Accepted Answer

This scenario describes a leveraged buyout (LBO), which is a transaction in which a group of investors acquires a company using a significant amount of borrowed money, with the assets of the target company serving as collateral for the loans. The goal of an LBO is to use the target company's assets and cash flow to pay off the debt over time, while increasing the investors' return on equity.

Several Investors Are Negotiating to Purchase a Business