CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt
A private equity fund acquires a mature, cash-generative manufacturer using a high proportion of borrowed money, with the target's own assets and cash flows supporting the debt. This strategy is best described as a:
This is a leveraged buyout. The fund buys a mature, cash-generative company using substantial debt backed by the target's assets and cash flows. Venture capital instead funds early-stage firms, and growth equity takes minority stakes in expanding companies with little leverage.
- Aventure capital investment
- Bleveraged buyoutCorrect
- Cgrowth equity investment
Explanation
A leveraged buyout acquires an established company using substantial debt secured on the target's assets and cash flows. Venture capital targets early-stage firms with little debt, and growth equity usually involves minority stakes in expanding firms with modest leverage.
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