medium · Investment Banking
A company has a Net Operating Loss (NOL) balance of $100 million.
In an LBO context, how would this affect the sponsor's valuation of the target?
- It increases valuation by the PV of the tax shields, but usage is capped annually under Section 382.
- It is treated as a liability because it represents future deferred cash tax payments owed.
- It is ignored in the sponsor's model, since a change of control automatically wipes out all existing NOLs.
- It increases the EV directly, dollar for dollar, by the full undiscounted face value of the NOL ($100M).
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