- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 4. Overview of Equity Securities
- Subject 3. Private versus Public Equity Securities
CFA Practice Question
In a LBO buyout, which components are the most sensitive to the level of the exit?
II. Preference shares
III. PE equity
IV. Management equity
I. Debt
II. Preference shares
III. PE equity
IV. Management equity
Correct Answer: III and IV
They are expected to increase/decrease significantly depending on the total enterprise exit value.
User Contributed Comments 7
| User | Comment |
|---|---|
| poomie83 | Could someone explain why this would be the case? |
| tankdan | Redundancies: LBO Buyout, PE equity.... |
| ericczhang | Debt and preferreds are claims on fixed payments, do they don't participate in gains on higher equity exits. But PE and management equities directly participate in gains upon exit because they sell their shares. |
| johntan1979 | Keywords: most sensitive |
| jorellana9 | this question is worded awfully vague. I think "level of exit value/enterprise value" would have been a lot more effective |
| khalifa92 | i still dont get the question |
| thevinu | dont preference shares get payouts upon lbos as well? |