25-55 Which of the Following Transactions Does Not Meet the Legal

question 78

Multiple Choice

25-55 Which of the following transactions does not meet the legal definition of a highly leveraged transaction (HLT) ?

• A)A buyout that increases debt from $100 million to $150 million resulting in a 55 percent leverage ratio.
• B)A recapitalization that increases debt from $100 million to $250 million resulting in a 55 percent leverage ratio.
• C)An acquisition that increases debt from $100 million to $250 million resulting in a 55 percent leverage ratio.
• D)An acquisition that increases debt from $100 million to $150 million resulting in an 80 percent leverage ratio.
• E)An acquisition that results in an 80 percent leverage ratio.

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Definitions:

Marginal Cost

The increase in cost resulting from the production of one additional unit of a good.

Variable Cost

Costs that change in proportion to the level of activity or volume of production in a company.

AVC

Average Variable Cost, which refers to the total variable cost per unit of output in a business, where variable costs change with the level of production.

MC

Marginal Cost, the cost of producing one additional unit of a product or service.