Question

Cash flows of firms improve following leveraged buyouts (LBOs). What are the explanations for these improvements?

Cash flows of firms improve following leveraged buyouts (LBOs). What are the explanations for these improvements?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The explanations for these improvements are as follows-

1. Productivity gains- The firm improves its productivity because they now have funds to improve it. Hence, this increase in productivity causes cash flows to increase.

2. Another reason is that LBOs are performed on companies whose prospects of improving are more. Hence, if the private equity firm doesn't have confidence over the future of the company, they wouldn't perform LBO on it.

3. The incentives of these firms also increase to improve cash flows because they have the burden of high debt repayment on them. If they don't end up increasing their performance, it can end up with the firm going bankrupt. They try to accelerate cash flows sometimes at the expense of long-run cash flows so that the firm can survive.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
What is Corporate Restructuring? what is Mergers and Acquisitions(M&A)? what is Leveraged Buyouts(LBOs)? what is Divestitures?...
What is Corporate Restructuring? what is Mergers and Acquisitions(M&A)? what is Leveraged Buyouts(LBOs)? what is Divestitures? what is Holding Companies?
Determine ways to improve the cash flows of an organization by addressing the following questions: What...
Determine ways to improve the cash flows of an organization by addressing the following questions: What methods can be used to speed up a firm’s cash inflows? What methods can be used to delay a firm’s cash outflows? What are some of the cash management strategies used by your organization or by organizations that you know? Are there any ethical items to consider with any of these methods or strategies?
However, a highly leveraged company puts the cash flows into stress as the debt has to...
However, a highly leveraged company puts the cash flows into stress as the debt has to be serviced periodically (mostly monthly or quarterly) irrespective of business's cash flow generation. If the debt service coverage ratio is not within the reasonable limit, it signifies that the business ability to repay debts as per their repayment schedule is in doubt. This would restrict banks to further extend the credit to those companies. Also, the credit rating of the company would get affected...
Provide economic explanations for the following: 1.Why is most productive activity carried out by firms rather...
Provide economic explanations for the following: 1.Why is most productive activity carried out by firms rather than by individuals who contract mutually with one another? 2. What influences the boundaries of the firm? 3. As islands of centralized planning, how do firms deal with Hayek’s knowledge problem critique of attempts to centrally plan economic activity? 4. Explain the problems of monitoring and metering employee productivity. How do firms overcome these issues?
"The imperfect correlation between the operating cash flows of the combining firms results in decreases to...
"The imperfect correlation between the operating cash flows of the combining firms results in decreases to the value of pre-merger debt to the benefits of the shareholders." True or false?
"The imperfect correlation between the operating cash flows of the combining firms results in decreases to...
"The imperfect correlation between the operating cash flows of the combining firms results in decreases to the value of pre-merger debt to the benefits of the shareholders." True or false?
Relevant cash flows ate the specific set of cash flows that a firm can expect if...
Relevant cash flows ate the specific set of cash flows that a firm can expect if it implements the project. If the firm doesn’t implement the project, the cash flows won’t exist. So it is the additional cash flows that the company can expect from the project. True or False If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the higher its distributions should be. True False...
Discounted Cash Flows Valuation An analyst makes the following forecasts of cash flows for a firm...
Discounted Cash Flows Valuation An analyst makes the following forecasts of cash flows for a firm with $2.5 billion of debt at the end of 2015 (in millions of dollars): 2016 2017 2018 Cash from operations 1,439 1,726 1,894 Cash investments 539 624 834 He forecasts that free cash flows will grow at 4% per year after 2018. Using a required return for operations of 10%, value each of the firms 2,453 million outstanding shares. 2. Simple Valuation An analyst...
Two identical firms have yearly after-tax cash flows of $20 million each, which are expected to...
Two identical firms have yearly after-tax cash flows of $20 million each, which are expected to continue into perpetuity. If the firms merged, the after-tax cash flow of the combined firm would be $42 million. Assume a cost of capital of 12%. Does the merger generate synergy? What is change in overall firm value from the merger? What is the value of the target firm to the bidding firm?
What are incremental cash flows? What types of cash flows are considered to be incremental?
What are incremental cash flows? What types of cash flows are considered to be incremental?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT