Series 79 practice questioneasyLeveraged Buyouts
Which of the following is typically the largest source of funds in a leveraged buyout (LBO) transaction?
- AManagement equity rollover
- BDebt financing✓ Correct answer
- CSponsor equity contribution
- DSeller financing
Explanation
Why B — Debt financing
LBOs are characterized by using a significant amount of debt relative to equity, making debt financing the largest funding source. Overestimating management or sponsor equity is a common misunderstanding.
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