An leveraged buyout (LBO) is best described as which of the following?

• A. A strategy to merge companies
• B. People can see cash that you're making and will buy out your business
• C. A method to raise capital
• D. An unrelated corporate restructuring

Answer: (B)

An LBO hinges on financing a purchase mostly with borrowed money, using the target’s own cash flows to service that debt. The core idea is that buyers can see strong, predictable cash generation, which makes the debt-financed deal feasible and attractive. In this framing, the statement about people recognizing the cash the business produces and being willing to buy it out captures the logic: investors are drawn to a deal where the target’s cash flow supports the leverage used to acquire it. The other descriptions don’t fit because an LBO isn’t primarily about merging firms, simply raising capital, or unrelated restructuring; it’s about acquiring a company with debt backed by the target’s cash flow.