easy · Private Equity & LBOs

How does PIK interest impact the levered Free Cash Flow (LFCF) of a business?

1. LFCF increases because it is a non-cash expense that provides a tax shield.
2. LFCF only increases if the principal is never repaid.
3. LFCF remains unchanged because all interest is levered by definition.
4. LFCF decreases because interest expense is higher on the P&L.

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