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)(A)and (B)combined
D)The gain in market value was never determined.

Question

Quizplus · Accepted Answer

The gain in market value for RJR stockholders was significantly higher than both the estimated value of additional interest tax shields and the estimated losses to RJR bondholders combined. This indicates that the benefits to stockholders outweighed the costs associated with the LBO.

In the Case of the RJR Nabisco LBO,the Gain in Market