easy · Private Equity & LBOs

What happens to the IRR of a transaction if a dividend recapitalization returns half of the initial equity in Year 2, assuming the total exit proceeds in Year 5 remain the same?

1. The IRR increases.
2. The IRR drops because the company takes on more debt.
3. The IRR remains the same because the total money returned is equal.
4. The IRR decreases.

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