How does the IRR change if your model goes from 8x entry and 8x exit to 12x entry and 12x exit? (Still assuming no multiple expansion as entry multiple = exit multiple).
All that is different now is that absolute multiple you enter and exit at is higher. After running this mechanically in an excel Paper LBO Model it seems that lower absolute levels of entry/exit multiple produce higher IRR than higher absolute levels (ex. IRR is higher with 3x exit and 3x entry relative to IRR with 10x exit and 10x entry).
Can someone provide a conceptual reasoning as to why this is the case?
Thank you
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