LBO Model Question
Some LBO models will reach levered FCF by simply taking unlevered FCF minus the cash interest expense incurred in that year. Isn't that not ideal though because it fails to account for the tax deductibility of interest expense? As in, cash taxes are overstated?
Is that method just acknowledged as a quick-and-dirty, yet imperfect, way to get to levered FCF? It seems to me the better way would be to use cash flow from ops minus capex as that takes into account the tax shield from interest expense.
Thank you
I would describe this method of calculating levered FCF as wrong
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