LBO Returns - Increasing Leverage Doesn't Increase Returns?
I've heard a lot of people say that increasing leverage will generally increase your returns in a LBO scenario as long as the cost of debt is cheaper than the cost of equity.
That makes sense, but what I don't understand is what the cost of equity is in a LBO. Is it the levered IRR (so your return on equity will increase as long as it is higher than the cost of debt)? Having some trouble wrapping my head around this, any insight much appreciated