medium · Investment Banking

Which of the following scenarios would result in the highest IRR for an LBO sponsor, assuming all other factors like EBITDA growth and exit multiple are held constant?

1. The exit occurs in Year 7 instead of Year 5 with the same MoIC.
2. The sponsor increases the initial equity contribution to 50% to reduce interest expense.
3. A dividend recapitalization occurs in Year 2 of a 5-year hold.
4. The company uses all excess cash to pay down debt rather than issuing a dividend.

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