LBO Returns Analysis
Hey guys, I'm doing an LBO for a PE Case Study and am trying to evaluate the returns / if this is actually a good investment.
The IRR I'm getting for my Base Case is approx. 16% which isn't too bad (Downside Case IRR is approx. 12%), but I know 20%+ is usually a good target to go for. However, one key assumption that they told us in the case study is that "Your cost of equity for a publicly traded asset with this level of risk is 9%".
By definition, Cost of Equity is the return a company requires to decide if an investment meets capital return requirements. So since the ~16% IRR I'm getting is greater than the 9% Cost of Equity, doesn't that make this a good investment or am I understanding the concept of Cost of Equity incorrectly in this situation?