Which of the following describes a leveraged buyout? A) The firm in d

QUESTION

Which of the following describes a leveraged buyout?

A) The firm in danger of being purchased by an unwanted company quickly finds a more acceptable buyer for itself.
B) The firm’s employees sell shares of their stock to the highest bidder in exchange for proxy votes of the board of directors.
C) The purchasing firm uses its own assets as security for the loan being used to finance the purchase of another company.
D) The firm’s employees borrow money against their own assets, such as their houses or their pension funds, to purchase the firm from its present owners.
E) The purchasing firm uses the assets of the company being acquired as security for the loan being used to finance the purchase.

ANSWER

Answer: E
Explanation: E) In a leveraged buyout, one firm borrows money to purchase another firm. The purchasing firm borrows against the assets of the company it is acquiring.