How can I tell if a deal will work for high leverage scenarios?
Hi All,
I was wondering how one would consider the merits of an investment in a high leverage scenario both on a levered IRR basis and from a cash-on-cash perspective. Essentially if I have a deal that works for a low leverage scenario (say ~50% LTC) producing a roughly 11% IRR & 5% cash-on-cash, how would I be able to tell if this would work better with greater leverage? Is there a mental framework that I can use to think this through?
Thanks a lot,
Hi Analyst 1 in PE - LBOs, hope I can help. Do any of these links cover what you're looking for:
More suggestions...
If those topics were completely useless, don't blame me, blame my programmers...
Bump
Not perfect, but you can use
RoE = RoA + D/E x (RoA - CoD), where:
RoE: equity returns
RoA: unlevered returns/ asset returns
D/E: debt to equity ratio
CoD: agg. cost of debt
It’s derived from the wacc formula. Doesn’t account for cash generation/ debt paydown, but just as a quick and dirty mental model.
Hope it helps.
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