Question

Which of the following results in a substantial increase in the amount of debt outstanding for...

Which of the following results in a substantial increase in the amount of debt outstanding for the firm?

Group of answer choices

LBO

Chapter 7

Chapter 11

stock merger

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

An LBO results in a substantial increase in the amount of debt outstanding for the firm.

A LBO i.e a leveraged buyout transaction involves acquiring another company by using huge amount of debt. The assets of the target company serve as a collateral for the loan and are used to generate the cash flow required to pay for the loan amount. In most of the cases, for an LBO, the transaction is supported by 10% equity and 90% debt.

Hence, a leveraged buyout transaction results in huge debt outstanding for the firm.

Do let me know in the comment section in case of any doubt.

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
The Rivoli Company has no debt outstanding, and its financial position is given by the following...
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 25% debt based on market values, its cost of equity, rs, will increase to 11%...
Assume an unlevered company chooses to alter its capital structure by adding debt and using the...
Assume an unlevered company chooses to alter its capital structure by adding debt and using the debt proceeds to reduce shares outstanding as to leave total invested capital unchanged. Absent any other changes, the company's earnings before interest and taxes (EBIT) can be expected to: Group of answer choices increase. decrease. remain unchanged. Assume an unlevered company chooses to alter its capital structure by adding debt and using the debt proceeds to reduce shares outstanding as to leave total invested...
The Rivoli Company has no debt outstanding, and its financial position is given by the following...
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT $700,000 Growth rate in EBIT, gL 0 % Cost of equity, rs 10 % Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 25 % What is Rivoli's intrinsic value of operations (i.e., its unlevered value)? Round your answer to the nearest dollar. $   What is its intrinsic stock price? Its earnings per share? Round your answers to the nearest cent. Intrinsic...
If a 7 percent increase in the price of a commodity results in a 12 percent...
If a 7 percent increase in the price of a commodity results in a 12 percent increase in the quantity supplied, supply is said to be Group of answer choices perfectly elastic. elastic. unit elastic. inelastic. perfectly inelastic.
The Arden Company has no debt outstanding, and its financial position is given by the following...
The Arden Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will increase to 13%...
Which statement is true? Group of answer choices Increase in the market risk premium will affect...
Which statement is true? Group of answer choices Increase in the market risk premium will affect the capital structure weights. The repurchase of preferred stock will decrease the weight of debt. An increase in the market value of preferred stock will increase the firm's WACC. The cost of preferred stock is unaffected by tax rate.
Which of the following statements is most correct? Group of answer choices If a company which...
Which of the following statements is most correct? Group of answer choices If a company which produces military equipment merges with a company which manages a chain of motels, this is an example of a horizontal merger. If a company which produces gasoline and oil products merges with a company which manages a chain of gas stations, this is an example of a vertical merger. If a company buys a firm that is not in the same industry, this is...
Which one of the following will decrease the aftertax cost of debt for a firm? Increase...
Which one of the following will decrease the aftertax cost of debt for a firm? Increase in tax rates.  Decrease in the market price of the debt. Increase in the risk-free rate of return. Decrease in the firm's beta. Increase in a bond's yield to maturity
Which of the following would result in the cancellation of debt being included in income? The...
Which of the following would result in the cancellation of debt being included in income? The canceled debt was for the taxpayer's primary residence. If the debtor was insolvent by more than the amount of the canceled debt. If the debtor was solvent at the time of debt cancellation. If the debt was canceled through a Chapter 7 bankruptcy.
The Rivoli Company has no debt outstanding, and its financial position is given by the following...
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will increase to 11%...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT