Levered Vs. Unlevered Return Question
All -
Should profit always remain the same when a deal is levered vs. unlevered?
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No. Profit is going to be different between the two. With leverage, relative to not using leverage, you will:
- invest less equity at the start because debt is making up some of the capital stack
- have relatively lower cash flows every intermediate period as you have the unlevered cash flows, but need to pay you debt service with them
- have lower cash flows at the end because you need to pay the debt back
.
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