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

Question

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The APV (Adjusted Present Value) approach is more useful than the WACC (Weighted Average Cost of Capital) approach in Leveraged Buyout (LBO) situations primarily because the capital structure changes over time. In an LBO, the proportion of debt and equity used to finance the purchase changes as the debt is paid down, which affects the company's cost of capital. The WACC approach assumes a constant capital structure, making it less suitable for LBO analysis where the capital structure is dynamic.

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