In the mid-1980s, Michael Milken and his firm, Drexel Burnham Lambert, made the term junk bonds a
Question:
a. The junk bonds issued by acquiring firms were riskier than investment-grade bonds.
b. The remaining equity in highly leveraged firms was more risky than it had been before the LBO.
c. After an LBO, the target firm’s capital structure would consist of very risky junk bonds and very risky equity. Therefore, the risk of the firm would increase after the LBO.
d. The junk bonds issued to conduct the LBO were less risky than the equity they re-placed.
Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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