WGU C201 Business Acumen Study
Guide questions and answers with
solutions
What are the two types of divestitures? - ANSWER 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? - ANSWER 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. - ANSWER 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.
Shareholders of the divesting company become shareholders of the 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). -
ANSWER 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. - ANSWER
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. - ANSWER 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
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. - ANSWER 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 - ANSWER 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.
Guide questions and answers with
solutions
What are the two types of divestitures? - ANSWER 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? - ANSWER 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. - ANSWER 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.
Shareholders of the divesting company become shareholders of the 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). -
ANSWER 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. - ANSWER
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. - ANSWER 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
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. - ANSWER 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 - ANSWER 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.
