Which of the Following Statements Is Most CORRECT

question 10

Multiple Choice

Which of the following statements is most CORRECT?

• A) Leveraged buyouts (LBOs)occur when a firm issues equity and uses the proceeds to take a firm public.
• B) In a typical LBO,bondholders do well but shareholders see their value decline.
• C) Firms are forbidden by law to sell any assets during the first five years following a leverage buyout.
• D) Not all target firms are acquired by publicly traded corporations.In recent years,an increasing number of firms have been acquired by private equity firms.Private equity firms raise capital from wealthy individuals and look for opportunities to make profitable investments.
• E) In an LBO sometimes the acquiring group plans to run the acquired company for a number of years,boost its sales and profits,and then take it public again as a stronger company.In other instances,the LBO firm plans to sell off divisions to other firms that can gain synergies.In either case,the acquiring group expects to make a substantial profit from the LBO,but the inherent risks are small due to the heavy use of venture capital and very little debt.

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Definitions:

Economic Status

Economic Status refers to the position of an individual, group, or country in terms of financial and resource aspects, influencing living standards and opportunities.

Fair Value

An estimation of the market value of an asset or liability based on the current market prices or valuations of similar assets and liabilities.

U.S. Tax Laws

The body of law governing the administration of taxes on individuals, corporations, and other entities in the United States.

Deductibility

The ability of an expense to be subtracted from gross income to determine the taxable income, thus reducing the amount of tax owed.