100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
LBO Capital Structure Considerations with 100% correct answers £12.33
Add to cart

Exam (elaborations)

LBO Capital Structure Considerations with 100% correct answers

 0 purchase

Why are capital structure considerations relevant for LBOs? The nature of LBOs is to rely heavily on leverage to produce attractive returns to equity investors. What is a primary pitfall to leverage? Creates investment risk and could jeopardize an equity holder's ability to recoup his/her ...

[Show more]

Preview 2 out of 7  pages

  • October 12, 2023
  • 7
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers
All documents for this subject (10)
avatar-seller
BRAINBOOSTERS
LBO Capital Structure Considerations
with 100% correct answers
Why are capital structure considerations relevant for LBOs? - answer The nature of LBOs is to
rely heavily on leverage to produce attractive returns to equity investors.


What is a primary pitfall to leverage? - answer Creates investment risk and could jeopardize an
equity holder's ability to recoup his/her initial investment.


Choosing the _________________ ______________ ________________ is extremely important
and will influence how the target company runs its operations? - answer Optimal capital
structure


With regard to leverage, what are three primary things a PE firm must weigh? - answer (1) Cost
of debt


(2) Capital structure flexibility


(3) How much debt is suitable for the target company


What are the four main tranches of capital that will typically be involved in an LBO, in terms of
seniority? - answer (1) Bank (senior) debt


(2) High yield debt


(3) Quasi equity (mezzanine)


(4) Common equity

, What are the six primary characteristics of bank debt? - answer (1) Low financing costs


(2) Lowest default risk in the capital structure


(3) Floating rate


(4) Callable instrument (sometimes)


(5) Restrictive maintenance covenants (sometimes)


(6) Ability to increase line of credit / additional debt


In a typical LBO, how much of the capital structure is comprised of bank debt? - answer 30-60%


What are the normal expected returns on bank debt? - answer 4-8%


What does lowest default risk mean for senior debt? - answer The holders are the first in line in
the capital structure to receive its money during the liquidation of a company


Is bank debt often secured or unsecured by a company's assets? - answer Secured


What is one drawback to a company taking on bank debt? - answer It typically becomes
burdened with strict maintenance covenants to protect the bank debt investors?


What are two common maintenance covenant requirements? - answer (1) Total leverage
covenants


(2) Interest coverage covenants

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller BRAINBOOSTERS. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for £12.33. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

64670 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy revision notes and other study material for 15 years now

Start selling
£12.33
  • (0)
Add to cart
Added