If you run a DCF and an LBO with the same assumptions, should you arrive at the same value?

• A. Yes
• B. No
• C. Only if debt is zero
• D. Only if cash flows are identical

Answer: (B)

Leverage and financing structure change the value you derive, even when operating assumptions are the same. A DCF values the business as an enterprise using unlevered cash flows discounted at the firm’s cost of capital, so the result reflects the operating economics independent of how the company is financed. An LBO, by contrast, starts with how the deal will be financed—debt and equity—and it’s driven by a target equity return at exit. The amount of debt, interest costs, repayment, and tax effects all shape the equity value you can extract, so the number you get from an LBO typically differs from the DCF’s enterprise value. The two methods answer related but different questions about value. The outputs would align only in a debt-free case, where financing effects disappear.