Someone (not me) mentioned being asked the following technicals at an EB as a "warm-up." How would you guys answer these?
*When would an LBO give a higher valuation than the other valuation methodologies?
When, if ever, is Cost of Debt be higher than Cost of Equity?*
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solve for a much lower IRR than WACC which lead to high entry values
theoretically this shouldn’t happen. but there are LBO model dynamics that cause raising debt to lower the levered IRR. if the 100% equity funded IRR (unlevered IRR) is LOWER than the cost of debt then the debt is not accretive to the IRR.
For your second answer could you elaborate more on the relationship between levered IRR, unlevered IRR, and debt?
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