Which Statement Best Explains a "Leveraged Buyout

question 18

Multiple Choice

Which statement best explains a "leveraged buyout"?

• A)A purchase where a small portion of the purchase price is raised by borrowing against the acquired assets.
• B)A purchase where a significant portion of the purchase price is raised by borrowing against the acquired assets.
• C)A purchase that is deemed too risky from a solvency perspective for the shareholders.
• D)A purchase that is deemed too risky from a solvency perspective for the bondholders.

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Definitions:

Present Value

The current financial value of money or cash flows that will be obtained in the future, factored by a particular rate of return.

Annuity

An economic device offering a steady series of disbursements to someone, commonly utilized as a financial support for retired individuals.

Market Rate

The prevailing rate at which a particular good, service, or asset is bought and sold in a free market.

Present Value

The current financial value of a future cash sum or series of inflows, adjusted with a determined rate of return.