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Levereged Buyout Method

The LBO valuation method gets its name from these deals, as it is used to determine the maximum price a buyer would have to pay to acquire a company through an LBO, considering expected cash flows and the effect of the high level of debt assumed. In essence, the LBO method takes into account projected future cash flows and calculates the maximum value that the company can support in terms of debt and the return that can be obtained through the combination of equity and debt.

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