Series 79 practice questionhardLBO Analysis - Sensitivity
In an LBO, which variable typically has the GREATEST sensitivity on equity IRR, all else equal?
- AAmount of capital expenditures
- BInterest rate on debt
- CEntry purchase price✓ Correct answer
- DInitial working capital balance
Explanation
Why C — Entry purchase price
Entry price has a direct and significant effect on IRR; a lower entry price boosts returns. While interest rates and capex affect returns, entry price is the most sensitive variable.
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