A PE firm acquires a company for $1 billion using $300 million of equity and $700 million of debt. After five years, the debt has been paid down to $400 million and the firm sells the company for $1.3 billion. What is the approximate multiple of invested capital (MOIC) on the PE firm's equity?

Why C — 3.0x

The MOIC is calculated as the equity proceeds divided by the initial equity investment. At exit, the enterprise value is $1.3 billion, and remaining debt is $400 million, so equity value at exit is $1.3B - $0.4B = $900 million. The MOIC is $900M / $300M = 3.0x. This illustrates how leverage amplifies equity returns in an LBO: while the enterprise value increased by only 30%, the equity value tripled due to the combination of enterprise value growth and debt paydown from operating cash flows.