Estimate the impact of interest payments on a levered private equity investment.
Module Category: Capital Structure Drivers
Key Concept: In LBOs, the amount of debt paid down during the hold, or the amount of cash accumulated on the company’s balance sheet, is described as Cashflow Generation (see Module 08). This value driver already includes the impact of GP financing decisions. However, with estimates of the interest burden and corporate tax rate, Cashflow Generation can be broken into value drivers for hypothetical Unlevered Cashflow Generation, Interest Costs, and Debt Tax Shield.