Once the LBO has been consummated,the firm's perceived ability to meet its obligations to current debt and preferred stockholders often deteriorates because the firm takes on a substantial amount of new debt.The firm's pre-LBO debt and preferred stock may be revalued in the market by investors to reflect this higher perceived risk,resulting in a significant reduction in the market value of both debt and preferred equity owned by pre-LBO investors.

Question

Quizplus · Accepted Answer

This statement accurately reflects the potential consequences of an LBO on the firm's debt and preferred equity holders.

Once the LBO Has Been Consummated,the Firm's Perceived Ability to Meet