The sale of a unit of a firm to existing management is often achieved through ________.
A) a limited partnership
B) a leveraged buyout
C) an employee stock option
D) a cash exchange

Question

Quizplus · Accepted Answer

A leveraged buyout (LBO) is a common way for existing management to purchase a unit of a firm. In an LBO, the management team borrows a significant amount of money to finance the purchase, using the assets of the unit being purchased as collateral. This allows the management team to use the future earnings of the unit to pay off the debt over time. This strategy can reduce the amount of upfront capital required from the management team, but it also increases the risk associated with the purchase, as the debt must be serviced regardless of the unit's performance.

The Sale of a Unit of a Firm to Existing