easy · Private Equity
A Sponsor performs a Dividend Recap in Year 3. They borrow an additional $100M at 8% interest and distribute it. If the original equity was $200M, and the Year 5 exit equity value is $400M, calculate the IRR with the recap versus a 'no-recap' Year 5 exit at $520M equity value.
- No-Recap IRR is higher; terminal equity value is $120M greater overall
- Recap IRR is lower; added interest expense reduces net income and equity growth
- Identical IRR; the $100M borrow amount perfectly offsets the terminal value loss
- Recap IRR is higher; early cash flow dominates the slightly lower terminal value
Sign up free to see the explanation and track your rank →
More Private Equity practice
- If the actual SOFR rate drops to 0.50%, what is the total interest rate paid by the borrow
- In a European (whole-fund) waterfall, a fund has called $100… — How much 'carried interest
- What is the fund's Total Value to Paid-In (TVPI) multiple?
- What is the new effective conversion price for the growth equity investor?
- What is the maximum debt allowed if the leverage covenant is set at 5.0x Covenant EBITDA?
- If EBITDA remains exactly the same and no debt is paid down, which lever is the sole sourc
- If net debt remained constant at $200M throughout the hold, what was the primary source of
- Which company will report a higher 'Gross Margin' and a higher ending 'Inventory' value on