Valuation at Exit in Leveraged Buyouts

Medium Private Equity Valuation Leveraged Buyouts

In a leveraged buyout (LBO) scenario, a private equity firm plans to acquire a target company using a mix of debt and equity. The firm anticipates that the operational improvements and financial structuring will enhance the company's cash flows over the investment period. After five years, the private equity firm aims to sell the company. Given this context, which of the following statements is most accurate regarding the valuation of the company at the exit stage?

The company’s valuation at exit will be solely determined by its book value.

The company’s valuation at exit will primarily depend on the projected future cash flows and the applicable exit multiple.

The company’s valuation at exit will be based mainly on the cost of equity used in the initial buyout.

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