An LBO model helps define the amount of debt a firm can support given its assets and cash flows.

Question

Quizplus · Accepted Answer

An LBO model, or leveraged buyout model, is specifically designed to determine how much debt a company can take on to fund a purchase or acquisition. The model calculates the company's cash flows, assets, and liabilities to determine an appropriate level of debt that can be supported. Therefore, the statement that an LBO model helps define the amount of debt a firm can support given its assets and cash flows is true.

An LBO Model Helps Define the Amount of Debt a Firm