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This step of the leveraged buyout (LBO) model lays the groundwork by setting up the transaction assumptions that drive the entire deal. The video covers entering purchase price and entry multiple, modeling the sources and uses of funds, splitting the capital structure between senior debt, subordinated debt, and sponsor equity, and defining transaction fees and financing costs. Getting these inputs structured cleanly is essential because every downstream tab, from the debt schedule to the exit returns, references the assumptions built here.