In the case of the RJR Nabisco LBO, the gain in market value for RJR stockholders was several times more than the
A)estimated value of additional interest tax shields generated by the LBO.
B)estimated losses to RJR bondholders as a result of drastic decline in bond ratings.
C)estimated value of additional interest tax shields generated by the LBO and the estimated losses to RJR bondholders as a result of drastic decline in bond ratings.
D)The gain in market value was never determined.

Question

Quizplus · Accepted Answer

The gain in market value for RJR stockholders from the LBO was significantly more than the combined estimated value of additional interest tax shields and the estimated losses to bondholders due to a decline in bond ratings. This reflects the substantial financial leverage and strategic restructuring benefits that can accrue from a well-executed leveraged buyout, outweighing the costs associated with increased debt and potential bondholder losses.

In the Case of the RJR Nabisco LBO, the Gain