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:

Private Ownership

Private ownership denotes the legal right of individuals or entities to own property or businesses, as opposed to ownership by the government or public bodies.

Public Ownership

The state or condition where assets are owned by the government or a public entity, rather than by private individuals or companies.

Antitrust Laws

Legislation enacted to prevent new monopolies from forming and police those that already exist to protect consumers from predatory business practices.

Fair Return Price

A pricing concept where the price of a good or service is set to allow the provider to cover costs and earn a reasonable profit, often associated with regulated industries.