medium · Private Equity accounting-flow
How does PIK interest impact the levered Free Cash Flow (LFCF) of a business?
- LFCF increases because it is a non-cash expense that provides a tax shield.
- LFCF only increases if the loan principal is never actually repaid.
- LFCF remains unchanged because all interest expense is levered by definition.
- LFCF decreases because the reported interest expense is higher on the income statement.
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