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Leveraged buyout (LBO) refers to a strategy of making equity investments as part of a transaction in which a company, business unit, or business asset is acquired from the current shareholders typically with the use of financial leverage. [13] The companies involved in these transactions are typically mature and generate operating cash flows. [14]
Aircraft are expensive and owning one requires hefty Capital Expenditure. A Boeing 737-700 , the type Southwest uses, is priced in the range of $58.5–69.5 million. [ 1 ] Airlines also typically have low margins so very few airlines can afford to pay cash for all their fleet.
The investor has to finance with their own capital the difference between the value of the collateral and the asset price, known as the margin. Thus the asset becomes leveraged. The need to partially finance the transaction with the investor's own capital implies that their ability to buy assets is limited by their capital at any given time.
Capital One Financial Corporation is an American bank holding company founded on July 21, 1994 and specializing in credit cards, auto loans, banking, and savings accounts, headquartered in Tysons, Virginia with operations primarily in the United States. [2]
The method is to calculate the NPV of the project as if it is all-equity financed (so called "base case"). [7] Then the base-case NPV is adjusted for the benefits of financing. Usually, the main benefit is a tax shield resulted from tax deductibility of interest payments. [7] Another benefit can be a subsidized borrowing at sub-market rates.
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. In real estate , the term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property .
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