(Solved) : Congoleum Company Management Decide Buy Congoleum 1 Free Cash Flow Strong Brand Well Estab Q33201189 . . . .

–This is about the Congoleum company:

Why did management decide to buy Congoleum?

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

2. They believed the company was undervalued.

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

4. The “tear-apart” value was greater than the current value asa single firm

5. The firm could be purchased with almost all debt and equityvalue could be added by paying down debt through normaloperations.

Answers: a. All are reasons.

b. Only 2 and 3 are reason

c. Only 5 is reason

–Which of these statements concerning LBOs would implyendorsement the Modigliani/Miller Theorem?

1. The tax