HOMEWORK 2 Discuss the following questions/topics using the textbook(Gaughan, M&As, 7 ed) and additional research. Your answers must include 2 sources other than the textbook, 1 biblical integrat


Discuss the following questions/topics using the textbook(Gaughan, M&As, 7 ed) and additional research.  Your answers must include 2 sources other than the textbook, 1 biblical integration, and be in current APA format, a title page and abstract are not required.

  1. Why were hedge funds developed?  What role do they play in the market today?
    1. The topic of hedge funds is addressed in chapter-7, beginning on page 279.  Activist hedge funds begins on page on page 282.
    2. https://www.youtube.com/watch?v=Qb7tbWuDc2U
  2. What were some of the reasons for corporate de-leveraging despite the low Federal Reserve rates?  ***QUESTION 2 is WAIVED.***
    1. The “Corporate De-levering and Cash Balances” section is addressed on pages 295 to 296.  You may want to address the benefits of leverage and de-leverage regarding M&A activity.
  3. What created the change in the activist acquisition targets?
    1. The “Changing Nature of the Targets of Activists” is addressed on page 283.  “Activist Campaigns for Board Seats” is addressed on page 284.  “Activist Hedge Funds and Shareholder Wealth Effects” is addressed on page 290 of the text.
  4. Why is Jeff Smith known as one of the most aggressive activists?  What was the result of his actions?
    1. Jeff Smith is addressed beginning on page 296 regarding Starboard Value, and continued on pages 298-300.   You may want to research Starboard Value further online to support your written analysis.
    2. https://www.youtube.com/watch?v=fUWu9-emEdA  
  5. What is the difference between a leveraged buyout and a going-private transaction?
    1. “Going-Private Transactions and Leveraged Buyouts” are addressed in chapter-8, which begins on page 305.
  6. How have the trends in leveraged buyouts changed since their origination in the 1980’s?
    1. The trends of the 1970’s, 1980’s to 2000’s are addressed on pages 307 to 310.
    2. https://www.youtube.com/watch?v=wpllcZa3bwg 
  7. RJR Nabisco is ranked as one of the largest leveraged buyouts; discuss another recent leveraged buyout.  How does this LBO differ from what happened at Nabisco?
    1. Please read the case regarding RJR Nabisco begins on page 311.
    2. https://www.youtube.com/watch?v=29Cv3-dGzJs
  8. Discuss some of the potential conflicts of interest that take place in a management buyout.
    1. The topic of “Management Buyouts” are addressed from pages 314 to 317.  Conflicts of interest are addressed at the bottom of page 318.
  9. How does debt have a lower cost than equity?  How does this impact the company’s tax position?
    1. Please address the tax benefits of debt addressed on page 325.  You may want to address the optimal capital structure of the firm regarding the Weighted-Average-Cost-of-Capital and valuation.  You may want to address Modigliani & Miller.
      1. https://www.youtube.com/watch?v=eKFy5HuOoQo
      2. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1985/modigliani-bio.html
      3. https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/miller-facts.html
  10. List at least two ways of financing a leveraged buyout.  Which method would you choose if you were brokering the LBO?
    1. The topic of financing a leveraged buyout begins on page 328.  The topics of senior debt, other senior debt revolving credit, asset-based lending, term loans, subordinated debt, high-yield bonds, bridge loans, and vertical strips are addressed from pages 329-331.

Please note that the level of effort and analysis will determine your score earned on the homework-2 assignment. 

Please make sure to include references in addition to the text, and be careful not to plagiarize.  Plagiarized work will automatically earn zero credit.  Please limit the excessive use of quotations.  A series or a block of quotes may not earn you full credit on the question. 

Make sure to provide your own opinions, commentary and analysis for each of the questions.  A brief paragraph may not earn you full credit on the assignment.  Each question should at least be over a half page to a full page of original written analysis.

Please review the rubric comments from the homework-1 assignment for any future adjustments needed toward the construction of the homework-2 assignment. 

A good format is to state what the text say about the topic, what an Internet reference states on the topic, and then provide your opinion on what you have learned about the topic.  You may integrate scriptures when you deem appropriate/applicable.

Please make sure to provide your opinions on what you have learned on each of the topics. 

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