Shareholders receive extra dividends than the pre

Shareholders receive extra dividends than the pre-specified rate in case of higher profits. The shareholders also
receive a higher proportion of firm’s asset than the par value in case of liquidation. Similar to the interest payments
on debt securities, the dividends on preference shares are fixed and are generally higher than the dividends on
common shares. However, unlike interest payments, preference dividends are not contractual obligations of the
company. Section 3.2. LO.e.
Question
9 Which of the following is most likely true for a leveraged buyout (LBO)?
A) A company uses debt to buy back its shares.
B) The management of a firm uses its own equity to purchase the common shares of a public company.
C) A group of investors uses a large amount of debt to buy all outstanding common shares of public company.
Answer C) A group of investors uses a large amount of debt to buy all outstanding common shares of public company.
Explanation C is correct. This is the correct definition of a leveraged buyout (LBO), which is covered in more detail in Alternative
Investments. A is incorrect because company does not buy back its own shares through debt. B is incorrect
because a large amount of debt relative to equity is used to buy out a firm. Section 4. LO.c.
Question
10 All of the following are correct about private equity securities expect:
Section 4. LO.c.
Question
11 Leveraged buyout investments:
In Leveraged buyout:
.
Section 4. LO.c.
Question
12 Which of the following differences between private and public equity firm is incorrect?
A) Exiting out of a private equity investment in comparison of public equity is easy as they do not trade on
secondary markets.
B) Private equity investment score low in terms of corporate governance relative to their public counterparts.