What must be done after calculating Free Cash Flow (FCF) in an LBO model?

After calculating Free Cash Flow (FCF) in a Leveraged Buyout (LBO) model, determining the exit price is a crucial next step. The exit price is essential as it represents the anticipated value at which the investment can be sold or exited after a certain holding period. In an LBO, the understanding of FCF helps project how much cash flow will be available for debt repayment and helps gauge the performance of the investment over time. Ultimately, the exit price will influence the overall financial return on the investment and is typically based on an exit multiple applied to the final projected FCF or an analysis of comparable sales. This process is integral to assessing the success of the LBO and ultimately achieving the investment goals.

The other choices do not come after calculating FCF in the same logical progression. Adjusting the income statement for tax is part of earlier financial analysis, combining balance sheets is related to organizing the financial positioning of entities involved, and paying off cash reserves while important in cash management does not directly follow the FCF calculation within the context of LBO modeling.