WGU C201 Business Acumen Study Guide Questions With 100%
Correct Answers Updated 2024
Shareholders of the divesting company become shareholders of the
... [Show More] new company as a
merger is a combination of two or more companies into one company. An acquisition is a
transaction in which one
company buys another. Even in a merger, there is a buyer and a seller (called the target). -
The buyer offers cash,
securities, or a combination of the two in return for the target's shares. Mergers and
acquisitions should be evaluated as
any large investment is: by comparing the costs with the benefit
Synergy is the term used to describe the benefits a
merger or acquisition is expected to produce. A leveraged buyout (LBO) is a transaction in
which shares are purchased
from public shareholders, and the company reverts to private status. Usually LBOs are
financed with substantial amounts
of borrowed funds. Private equity companies are often major financers of LBOs. -
Divestitures are the opposite of mergers,
in which companies sell assets such as subsidiaries, product lines, or production facilities. A
sell-off is a divestiture in
which assets are sold to another company. In a spin-off, a new company is created from the
assets divested.
Long-term funds are repaid over many years. There are three sources: long-term loans
obtained from financial institutions, bonds sold to investors, and equity financing. Public
sales of securities represent a major source of funds for corporations. These securities can
generally be traded in secondary markets. Public sales can vary substantially from year
to year depending on the conditions in the financial markets. - Private placements are
securities sold to a small number of
institutional investors. Most private placements involve debt securities. Venture capitalists
are an important source of
financing for new companies. If the business succeeds, venture capitalists stand to earn
large profits
What are the two types of divestitures? - A sell-off is a divestiture in which assets are sold
to another company. In a spin-off, a new company is created from the assets divested.
Shareholders of the divesting company become shareholders of the new company as well.
What is an LBO? - a leveraged buyout is a transaction in which public shareholders are
bought out, and the company reverts to private status. LBOs are usually finance with large
amounts of borrowed money.
Define synergy. - the term used to describe the benefits produced by a merger or
acquisition. It is the notion that the combined company is worth more than the buyer and the
target are individually.
Private equity funds are investment companies that raise funds from wealthy individuals and
institutional investors and use the funds to make investments in both public and private
companies. Unlike venture capitalists, private equity funds invest in all types of businesses.
Sovereign wealth funds are investment companies owned by governments. - What is the
most common type of security sold privately? Corporate debt securities are the most
common
type of security sold privately.
Describe venture capitalists -Venture capitalists raise money from wealthy individuals and
institutional investors and invest the funds in promising companies. If the business
succeeds, venture capitalists can earn substantial profits.
What are the three sources of short-term funding? - The three sources of short-term
funding are trade credit,
short-term loans, and commercial paper.
Explain trade credit - Trade credit is extended by suppliers when a buyer agrees to pay for
goods and services at a later date. Trade credit is relatively easy to obtain and costs nothing
unless a cash discount is offered.
Why is commercial paper an attractive short-term financing option? - Commercial paper is
an attractive financing option because companies can raise large amounts of money by
selling commercial paper at rates that are generally lower than those charged by banks.
Businesses have two sources of funds: debt capital and equity capital. Debt capital consists
of funds obtained through borrowing, and equity capital consists of funds provided by the
company's owners. The mix of debt and equity capital is known as the company's capital
structure, and the financial manager's job is to find the proper mix. - Leverage is a
technique of increasing the rate of return on funds invested by borrowing. However,
leverage increases risk. Also, overreliance on borrowed funds may reduce management's
flexibility in future financing decisions. Equity capital also has drawbacks. When additional
equity capital is sold, the control of existing shareholders is diluted
In addition, equity capital is more expensive than debt capital. Financial managers are also
faced with decisions concerning the appropriate
mix of short- and long-term funds. - Short-term funds are generally less expensive than
long-term funds but expose companies to more risk. Another decision involving financial
managers is determining the company's dividend policy.
What is a sovereign wealth fund? - sovereign wealth fund is a government-owned investment
company. These companies make investments in a variety of financial and real assets, such
as real estate. Although most
investments are based on the best risk-return trade-off, political, social, and strategic
considerations play roles
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