Which of the Following Is True Regarding Leveraged Buy-Outs (LBOs)

question 26

Multiple Choice

Which of the following is true regarding leveraged buy-outs (LBOs) ?

• A)LBOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing.
• B)Concentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem.
• C)LBOs improve a company's free cash flow and this is the mechanism by which they can solve the agency problem.
• D)Both a and b

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Definitions:

Expense Recognition Principle

An accounting principle that expenses should be recognized in the period in which they are incurred, matching them with the revenues they help to generate.

Time Period Assumption

An accounting principle that allows an organization to divide its economic activities into specific time periods such as months, quarters, or years for reporting purposes.

Adjusting Entries

Closing entries in accounting at the end of a period to ensure income and expenses are attributed to the period in which they took place.

Business Events

Occurrences that affect the financial position of a company and can be measured reliably in financial terms.