A sponsor structures an LBO using $600 million total purchase price, $150 million equity, and $450 million debt. If the deal is projected to generate $60 million in annual free cash flow and the sponsor targets a 25% IRR, what is a primary risk if exit multiples compress at sale?

1. AThe company will have higher interest expense
2. BThere will be less equity rollover at exit
3. CThe sponsor's returns may be significantly reduced if sale proceeds are lower than expected✓ Correct answer
4. DThe company will be required to refinance debt at closing

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