The use of a large amount of debt to finance the acquisition of other firms is a ________.
A) conglomerate merger
B) leveraged buyout
C) hostile merger
D) congeneric buyout

Question

Quizplus · Accepted Answer

The use of a large amount of debt to finance the acquisition of other firms is typically associated with a leveraged buyout (LBO). A leveraged buyout is a financial strategy in which a company or group of investors acquires a target company using a significant amount of debt financing, which is then paid off using the cash flows generated by the acquired company. This strategy can be attractive because it allows the acquirer to use the assets of the acquired company as collateral for the debt, which can help to reduce the cost of financing. However, LBOs also involve a significant amount of risk, as the debt burden can be difficult to manage and may put the acquired company at risk of defaulting on its obligations.

The Use of a Large Amount of Debt to Finance