--This is about the Congoleum company:

Why did management decide to buy Congoleum?

1. Free cash flow was strong and the brand was well-established.

2. They believed the company was undervalued.

3. They had nothing to lose and it looked like a great way to make a living

4. The tear-apart value was greater than the current value as a single firm

5. The firm could be purchased with almost all debt and equity value could be added by paying down debt through normal operations.

Answers: a. All are reasons.

b. Only 2 and 3 are reason

c. Only 5 is reason

--Which of these statements concerning LBOs would imply endorsement the Modigliani/Miller Theorem?

1. The tax deductibility of bonds means that more free cash flow goes to the corporation as opposed to taxes.

2. Tax savings from tax-tax-deductibility of interest can be used to reduce indebtedness and increase corporate equity.

3. LBOs maximize tax benefits but also increase corporate risk of default

4. Equity returns are magnified with increases in debt if cash flows are adequate to service the debt.

a. None of the above

b. All of the above

c. Only 3 and 4

or please say if you have preferred set of option(s).