medium · Investment Banking
A Private Equity firm performs a 'Dividend Recap' by taking on $300 million in new debt to pay themselves a dividend in Year 2 of a 5-year investment.
What is the impact on IRR and MOIC?
- Only MOIC increases here, since IRR is calculated solely from the final exit proceeds.
- IRR increases because capital is returned earlier; MOIC may be less affected or slightly increase.
- Both IRR and MOIC decrease meaningfully here due to the substantially higher new debt burden.
- IRR decreases here because the company now carries meaningfully higher annual interest expenses each year.
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