LBO & Paper LBO
Show with numbers why leverage amplifies LBO returns even after accounting for the interest cost. Same company, all-equity vs 60% debt.
Model answer
Buy at EV 1,000 (EBITDA 100 at 10x); exit EV 1,300 in year 5. Unlevered FCF is about 60/yr. All-equity case: invest 1,000; FCF accumulates roughly 300 of cash; exit equity = 1,300 + 300 = 1,600; MOIC…
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