When a private equity firm purchases the outstanding equity of a publicly traded firm (thereby taking the companyprivate) and finances the transaction primarily with debt, the transaction is called a(n):Select one correct answer:Leveraged buyoutPrivate leveraged transactionInitial public offeringCash offer

Leveraged buy out : For acquisition of a company by financing this transaction through debt is…

Answered: When a private equity firm purchases…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 1Q

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When a firm conducts a seasoned equity offering and uses the proceeds to purchase a portion of the firm's outstanding debt, then the firm's Group of answer choices business risk increases. financial risk decreases. financial risk increases. business risk increases.
Let’s discuss the intermediary in an initial public offering (IPO) using trading terminology. In a best-efforts IPO (rather than firm commitment IPO), does the investment bank act as an agent/broker or a principal/dealer? (a) agent/broker (b) principal/deale
Under which condition an external equity financing can be advantageous? Group of answer choices When a firm wishes to raise additional capital by selling a portion of the existing owners' stock while maintaining control of the firm When a firm's capital structure contains more equity than debt All of the above When common stock becomes less risky to the firm than fixed-income securities
Mikasa Enterprises needs additional funding and intends to sell its shares in the stock market thru an initial public offering (IPO). This transaction is considered as: A. Private placement B. Public offering C. Any of these D. Financial institution transaction
In a _____, the managers of the firm purchase the outstanding shares and take the firm private. Select one: a. asset acquisition b. vertical acquisition c. proxy contest d. tender offer e. management buyout
Which of the following statement is true? a. In brokered markets, buyers and sellers confront each other directly and bargain over price. b. Primary market is the market for trading outstanding securities. c. Preference shareholders have a higher priority claim on company’s assets than ordinary shareholders in the event of insolvency. d. Ordinary shareholders receive fixed dividend payments.
Which of the following statements about IPOs is (are) True: (i) An IPO refers to the first time a firm issues bonds to be bought by the public. (ii) An IPO refers to the first time a firm issues shares to be bought by the public. (iii) A secondary offering IPO is when a firm becomes public by allowing previous investors and founders to sell part (or all) of their shares.
Which of the following is correct a. In a leveraged recapitalization, a firm uses its excess cash to buyback shares b. In an LBO, a firm borrows and repurchases its shares thereby reducng the number of shares outstanding. c. In a leveraged recapitalization, a change of ownership occurs as the firm is sold d. In an LBO, debt is a major component of the financing and a change of control occurs. e. In an LBO, managers use excess cash to repurchase shares
Which of the following is INCORRECT description for private equity transactions? Group of answer choices a. There are liquid public markets for privately held securities such as NASDAQ. b. The process of creating value in private equity, whether building a brand-new company or turning around an established one requires significant time and means a long-term relationship. c. The general partner participates actively in the governance of the investment d. Private equity investing is a lot of work as gaining access to better opportunities requires active sourcing and negotiation
An offering of shares to institutional investors at a discount to the current market price is known as a: Select one: a. Initial Public Offering (IPO). b. Private Placement c. Rights Issue d. Dividend Reinvestment Plan (DRP).
When an investment banker purchases an offering froma bond issuer and then resells it to the public this is known as a: A. Rights offering B. Private placement C. Firm commitment D. Best Efforts E. Standby offering
Which of the following correctly indicates how the issue price of common stock shares would be valued when a corporation makes a follow-on issue? Market forces determine the selling price, as it is marketed by the selling group The highest expected issue price per share that can be obtained while still selling of all of the shares is selected The highest expected issue price per share that can be obtained, regardless of the selling group's ability to market the shares, is selected The market price of existing shares is used as guidance

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