In the context of an LBO transaction, consider the case of WSP Manufacturing, a company targeted for acquisition. WSP has recently invested in new machinery to increase its production capacity and regularly spends on updating its existing equipment to ensure operational efficiency. How do these actions illustrate the difference between maintenance capital expenditures (CapEx) and growth CapEx? To inflate the company's valuation by showing increased profitability through speculative growth projects.

• To assess the maximum potential cash flow available for debt repayment by understanding the company's operational efficiency without the influence of speculative expansion projects.
• To demonstrate to lenders the company's capacity for expansion, ensuring easier access to additional financing.
• To simplify the financial model by avoiding the complexity of forecasting future investments and their returns.