Question

Paula and Chuck want to acquire Floral Works, a floral design company. However, they don't have the funds, so they borrow money from the bank, using Floral Works' assets to guarantee repayment of the loan. What kind of business transaction is this?

Group of answer choices

a poison pill

a vertical merger

a leveraged buyout

a horizontal merger

a conglomerate merger

Answer 1

Option C

This is a leveraged buyout kind of business transaction

Explanation:

This is a leveraged buyout as the Paula and Check utilized borrowed funds from the bank to procure Floral Works. A leveraged buyout (LBO) is the purchase of another company practicing a notable sum of pledged cash to adhere to the price of purchase.

The assets of the firm being obtained are frequently employed as security for the loans, onward with the assets of the acquiring firm. The idea of leveraged buyouts is to enable firms to make massive purchases externally ought to invest a lot of funds.