Question

    In a leveraged buyout (LBO), what is the primary source

    of funds used for the acquisition of a company?
    A Equity Correct Answer Incorrect Answer
    B Debt Correct Answer Incorrect Answer
    C Preferred stock Correct Answer Incorrect Answer
    D Convertible bonds Correct Answer Incorrect Answer
    E Mezzanine instruments Correct Answer Incorrect Answer

    Solution

    As the name suggests, the primary source of funds used to finance the acquisition of a company in a LBO is debt. The acquiring company uses a significant amount of debt to finance the acquisition, with the intention of using the cash flows from the target company to pay down the debt.

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