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Multiple Choice Quiz
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1
The following are examples of changes in corporate control except:
A)Mergers and acquisition
B)LBOs
C)Proxy fights
D)Spin-offs and carve-outs
2
Leveraged buyouts (LBOs) almost always involve:
A)AAA grade debt
B)Issuance of new shares of stock to many investors
C)The existing management team as new shareholders
D)Junk grade debt
3
When a LBO is led by management, it is called
A)MBO
B)IPO
C)LBOM
D)CEO
4
Junk bonds are bonds with:
A)AAA or Aaa ratings
B)BBB or Baa ratings
C)BB or Ba ratings or lower
D)D-rated bonds
5
In the case of spin-offs:
A)Shares of the new company are given to shareholders of the parent company
B)Shares of the new company are sold as a public offering
C)Shares of the new company are bought by borrowing or issuing junk bonds
D)None of these options
6
In the case of carve-outs:
A)Shares of the new company are given to the shareholders of the parent company
B)Shares of the new company are sold in a public offering
C)Shares of the new company are bought by borrowing or issuing junk bonds
D)None of these options
7
Which of the following statements regarding spin-offs and carve-outs is not true?
A)Spin-offs are not taxed if the shareholders of the parent company are given a majority of shares in the new company.
B)Spin-offs are not taxed if the shareholders of the parent company are given at least 80% of the shares in the new company.
C)Gains or losses from carve-outs are taxed at the corporate tax rate.
D)A carve out can reduce shareholder value if synergies are lost.
8
A privatization is a:
A)Sale of a government-owned company to private investors
B)Sale of private companies to the government
C)Sale of a publicly traded company to private investors
D)None of these options
9
The following are important motives for privatization except:
A)Revenue for the government
B)Increased efficiency
C)Share ownership
D)Economies of scale
10
Who puts up almost all the money in a private equity investment fund?
A)General partner
B)General and limited partners equally
C)Limited partners
D)It varies too much to generalize
11
Which of the following is an advantage of private equity partnerships?
A)Carried interest gives the general partner plenty of upside
B)General partner has incentives to take risks
C)No separation of ownership and control
D)All of these options
12
A leveraged restructuring is different from an LBO because
A)Debt is used
B)Company goes private
C)No change of control
D)All of these options
13
Which of the following is related to leveraged buyouts?
A)Shares in new company are distributed to parent company's stockholders.
B)A large fraction of the purchase price is debt-financed.
C)Shares in the new company are not given to existing shareholders; they are sold to the public.
D)Sale of a government-owned company to private investors.
14
LBOs involve high debt, incentives, and the following:
A)Public ownership
B)Operational efficiency
C)Private ownership
D)Equity debt
15
Which of the following was not claimed as an advantage of a conglomerate in the 1960s and 1970s?
A)Stabilize earnings
B)Risk reduction
C)Managers were fungible
D)Manager incentives were easier to set





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