Leveraged buyout firms use the unencumbered assets and operating cash flow of the target firm to finance the transaction.

Question

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Leveraged buyout firms typically use a combination of equity and debt financing, using the assets and cash flow of the target firm as collateral for loans. The debt component of the financing is typically greater than the equity component, which allows the acquiring firm to take control of the target firm while minimizing the amount of capital it needs to invest upfront.

Leveraged Buyout Firms Use the Unencumbered Assets and Operating Cash