Which of the following statements is most CORRECT?
A) Leveraged buyouts (LBOs)occur when a firm issues equity and uses the proceeds to take a firm public.
B) In a typical LBO,bondholders do well but shareholders see their value decline.
C) Firms are forbidden by law to sell any assets during the first five years following a leverage buyout.
D) Not all target firms are acquired by publicly traded corporations.In recent years,an increasing number of firms have been acquired by private equity firms.Private equity firms raise capital from wealthy individuals and look for opportunities to make profitable investments.
E) In an LBO sometimes the acquiring group plans to run the acquired company for a number of years,boost its sales and profits,and then take it public again as a stronger company.In other instances,the LBO firm plans to sell off divisions to other firms that can gain synergies.In either case,the acquiring group expects to make a substantial profit from the LBO,but the inherent risks are small due to the heavy use of venture capital and very little debt.

Question

Quizplus · Accepted Answer

The statement correctly describes the trend of private equity firms acquiring target firms and raising capital from wealthy individuals. The other options are incorrect. A is incorrect because LBOs involve taking a public firm private, not the other way around. B is incorrect because bondholders typically lose value in an LBO, while shareholders may see their value increase or decrease depending on the circumstances. C is incorrect because there are no laws forbidding firms from selling assets after an LBO, but there may be restrictions or agreements in place as part of the financing arrangements. E is incorrect because the risks of an LBO are typically higher due to the heavy use of debt and leverage, not venture capital.

Which of the Following Statements Is Most CORRECT