Since an LBO's debt is to be paid off over time,the cost of equity decreases over time,assuming other factors remain unchanged.Therefore,in valuing a leveraged buyout,the analyst must project free cash flows,adjusting the discount rate to reflect changes in the capital structure.

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The statement is true. As the debt is paid off over time, the risk associated with the company decreases, which in turn reduces the cost of equity. Therefore, the discount rate used in the valuation of an LBO must be adjusted to reflect changes in the capital structure over time.

Since an LBO's Debt Is to Be Paid Off Over