The gains from LBOs typically derive from
A)tax savings because of high debt servicing.
B)loss in the value to bondholders.
C)improved performance because of incentives to managers and employees.
D)All of these options are correct.

Question

Quizplus · Accepted Answer

All of these options are correct. LBOs typically use high levels of debt to acquire a company, which can lead to tax savings from high debt servicing. This can also result in a loss in the value of bonds from the increased risk associated with high levels of debt. However, the new management team of an acquired company may have strong incentives to improve the company's performance and increase its value to ultimately pay off the debt.

The Gains from LBOs Typically Derive from