The WACC approach to valuation is not as useful as the APV approach in leveraged buyouts because:

Question

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In a leveraged buyout (LBO), the future reductions in debt are known at the time of the LBO. This makes the APV (Adjusted Present Value) approach more suitable than the WACC (Weighted Average Cost of Capital) approach, as APV can explicitly incorporate the tax benefits from debt reduction. The WACC approach assumes a constant debt level and interest tax shield, which may not hold true in an LBO where debt is expected to be reduced over time.

The WACC Approach to Valuation Is Not as Useful as the APV