easy · Private Equity & LBOs

When calculating the entry equity check for a 'cash-free/debt-free' transaction, how is the target's existing cash balance typically treated if it is retained by the buyer?

1. It is ignored as cash has no impact on equity value in an LBO.
2. It is treated as a transaction expense in the Uses table.
3. It is added to the enterprise value, thereby increasing the equity check.
4. It is subtracted from gross debt to determine net debt, thereby reducing the equity check.

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