If an LBO Target Does Not Repay Any Debt During

question 17

Multiple Choice

If an LBO target does not repay any debt during the investment horizon, how can the sponsor still realize a return?

• A)If the target reinvests its cash into the business, the sponsor can realize a return by selling the target at a higher enterprise value
• B)The sponsor cannot realize a return, as the enterprise value did not increase
• C)The sponsor cannot realize a return, as the value of the sponsor's equity could not increase
• D)It depends on the sponsor's internal rate of return

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