Key Considerations in LBO Valuation

Easy Private Equity Valuation Leveraged Buyouts

ABC Capital is considering a leveraged buyout (LBO) of a mid-sized manufacturing firm, XYZ Corp. The firm has been generating strong cash flows, and ABC Capital plans to finance the acquisition using a combination of equity and debt. In evaluating the potential investment, ABC Capital needs to determine the valuation of XYZ Corp. under the LBO structure.

Which of the following statements best describes a key consideration when valuing a company in a leveraged buyout?

The valuation primarily depends on the company's liquidation value rather than its cash flow generation ability.

The valuation should consider the amount of leverage employed and its impact on the cost of equity.

The valuation is mainly influenced by market comparable multiples, which generally reflect future earnings.

Hint

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