LBO-Model Debt-Free Cash-Free Question

When a prompt tells you that a company is being acquired on a cash-free, debt-free basis, how exactly should I be visualizing this? Does this mean that excess cash be used to fund the transaction and all of the outstanding debt be refinanced?

 

All cash is used to pay off the debt and any excess cash will be distributed to s/h's as a dividend "right" before the transaction occurs. So you have two sets of BS adjustment (1) cf/df adjustment and (2) transaction adjustment

 

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