easy · Private Equity & LBOs

In the context of 'Circular References' in an LBO model, how does PIK interest simplify the modeling process compared to cash-pay interest?

1. It allows the analyst to ignore the tax shield.
2. It removes the need for an Income Statement.
3. It does not create a circularity with the 'Cash Sweep' because it doesn't use cash.
4. It prevents the balance sheet from balancing.

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