When a small number of investors acquire all of the equity shares in a firm using borrowed funds,the transaction is best described as a
A)proxy contest.
B)management buyout.
C)leveraged buyout.
D)tender offer.
E)strategic alliance.

Question

Quizplus · Accepted Answer

A leveraged buyout (LBO) is an acquisition in which a small number of investors acquire all of the equity shares in a firm using borrowed funds. In an LBO, the debt is collateralized by the assets and cash flows of the target company, and the buyer typically uses the cash flows generated by the target to repay the debt. This results in a highly leveraged firm, which carries a significant amount of debt on its balance sheet. LBOs are often used as a way to take a company private, and they can be used to restructure a company or pursue growth opportunities that might not otherwise be available under public ownership.

When a Small Number of Investors Acquire All of the Equity