BUS 082 Lecture Notes - Lecture 16: Net Present Value, Earnings Before Interest, Taxes, Depreciation, And Amortization, Private Equity

• School: College of The Sequoias
• Department: Business (BUS)
• Course: BUS 082
• Professor: Porterfield

Document Summary

Returns analysis internal rate of return (irr) Irr measures the total return on a sponsor"s equity investment, including any additional equity contributions made, or dividends received, during the investment horizon. Sponsors also examine returns on the basis of a multiple of their cash investment: however, cash return approach does not factor in the time value of money. Using a higher percentage of debt in the financing structure (and a correspondingly smaller equity contribution) generates higher returns. Higher level of debt provides the additional benefit of greater tax savings realized due to the tax deductibility of a higher amount of interest expense. Clear trade-offs: higher leverage increases the company"s risk profile, limiting financial flexibility and making the company more susceptible to business or economic downturns. Sponsors aim to exit or monetize their investments within a five-year holding period in order to provide timely returns to their lps: returns typically realized via a sale to another company (commonly referred to as.