When a publicly traded firm is taken private by buying all of its shares, while financing the purchase by increasing the debt of the firm, this is called ________.
A)a stock buyout
B)a leveraged buyout
C)a venture buyout
D)a debt buyout

Question

Quizplus · Accepted Answer

A purchase of all shares of a publicly traded firm by increasing its debt is called a leveraged buyout (LBO). In an LBO, a group of investors usually borrow money to finance the acquisition of the company. Once the company is taken private, its ownership is controlled by the investors who led the buyout, and it no longer trades on public stock exchanges. The investors hope to maximize the returns on their investment by improving the company's operations, reducing costs, and eventually selling it at a higher valuation.

When a Publicly Traded Firm Is Taken Private by Buying