hard · Investment Banking

What is the primary impact of a 'Dividend Recapitalization' on a financial sponsor's internal rate of return (IRR)?

1. It increases IRR by accelerating cash inflows to the sponsor early in the investment horizon.
2. It decreases IRR by increasing the company's interest expense and reducing future cash flow.
3. It decreases IRR by creating a tax liability for the sponsor at the time of the dividend.
4. It has no impact on IRR because the total cash received over the hold period remains constant.

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