Question

the wacc approach to valuation is not as useful as the apv approach in leveraged buyouts because: the capital structure is changing. there is no tax shield with the wacc. the value of the levered and unlevered firms are equal. the unlevered and levered cash flows are separated which cannot be used with the wacc approach. there is greater risk with a lbo.

Answer 1

Answer:

the capital structure is changing

Explanation:

As we know that wacc approach used to determined the cost of capital by taking the cost and weightage of the capital structure i.e. debt, equity and the preferred stock The same would not be useful for the valuation purpose as the apv approach in the leveraged buyouts because the capital structure i.e. debt, equity and the preferred stock keeps changing

It does not remian constant

Therefore the same would be considered