IRR vs. equity return
Hi,
I have a very basic question as I'm preparing for PE interviews - and I am embarrassed to ask people at work. Basically, some sample models I see show equity returns in an LBO model - i.e. using the rate function in excel, the purchase price equity and the exit equity value. This takes into account, obviously, excess cash flow built.
This all makes sense to me - but can someone illuminate how this differs from an IRR (IRR or XIRR function) of the cash flows (e.g. fcf each year which includes debt and interest payments, and selling price at the end)?
I'm sure I'm missing something very clear...I know how to do both but not quite sure why they differ.
Any help appreciated, interview soon. Thanks.
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