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Leveraged Recapitalization

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What is leveraged recapitalization and what effects does it have on the value of equity?

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The solution explains the concept of Leveraged Recapitalization.

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Leveraged recapitalization is a type of financial restructuring in which debt replaces a part of equity in the capital structure of the firm. The firm takes substantial amounts of new debt which is used to pay dividend to shareholders and/or buy back shares. This payment of dividend/buy back of shares results in a reduction of the total value of equity. An ...

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