Which of the following is not true about attractive LBO candidates?
A. Most assets tend to be encumbered
B. Have low leverage
C. Have predictable cash flow
D. Have assets that are not critical to the ongoing operation of the firm
E. Are in mature, moderately growing industries
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Factors that are most likely to contribute to the magnitude of premiums paid to LBO target firm shareholders are
A. Tax benefits
B. Improved operating efficiency
C. Improved decision making
D. A, B, and C
E. A and C only
Premiums paid to LBO firm shareholders average
A. 20%
B. 70%
C. 5%
D. Less than typical mergers
E. More than typical mergers
Which of the following characteristics of a firm would limit the firm's attractiveness as a potential LBO candidate?
A. Substantial tangible assets
B. High reinvestment requirements
C. High R&D requirements
D. B and C
E. All of the above
Which of the following is not true about junk bonds?
A. Junk bonds are either unrated or rated below investment grade by the credit rating agencies
B. Typically yield about 1-2 percentage points below yields on U.S. Treasury debt of comparable maturities.
C. Junk bonds are commonly used source of “permanent” financing in LBO transactions
During recessions, junk bond default rates often exceed 10%
E. Junk bond default risk on non-investment grade bonds tends to increase the longer the elapsed time since the original issue date of the bonds
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