Question

It is generally believed that LBOs (leveraged buyouts) occur because of: managerial mistakes or self-interest. poor financial performance. lack of managerial knowledge and expertise. changes in the competitive environment.

Answer 1

The correct answer is letter "A": managerial mistakes or self-interest.

Step-by-step explanation:

Leveraged buyouts or LBOs carry a mixed image in the corporate world. An LBO is a way to buy a business with funds that are almost entirely lent by loans or bonds. Under certain instances, the company's properties being borrowed are used as collateral for the loans. That allows companies to make major acquisitions without investing a lot of money.

However, LBOs are mostly considered managerial mistakes because of the large amount of debt the firm incurs without certainty that the combined operations of the companies will generate enough revenue for repayment and profit.