Equity Investments - Equity Investments Section 2
1. As compared to public equity markets, operating in the private market:
- Option : A
- Explanation : Public firms are under pressure from shareholders to meet shorter-term demands. Compared to this, private firms are better able to focus on longer-term value creation opportunities.
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2. The most likely candidates for a management buyout (MBO) are firms with:
- Option : C
- Explanation : Firms with (1) large amounts of undervalued assets which can be sold to reduce debt; and (2) that generate high levels of cash flows which can be used to make interest and principal payments on the debt are most likely candidates for management buyout transactions.
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- Option : C
- Explanation : American depository receipts (ADRs) meet the investor’s preferences.
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- Option : B
- Explanation : Options A and C are reasons for investing in domestic companies. Option B is not a reason because restrictions on capital flows makes it harder (not easier) for local companies to raise capital.
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5. Which of the following is most accurate with respect to Level II listed ADR?
- Option : C
- Explanation : Level II (listed) ADRs have high listing fees. A and B are false statements.
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