Module VI· LBO Model MechanicsIntermediate
Question
How do you model the IRR calculation on sponsor equity?
Answer
Sponsor IRR is based on cash flows to the sponsor: initial equity investment as a negative cash flow and exit equity proceeds plus dividends / recap proceeds as positive cash flows. Use XIRR for dated cash flows or IRR for annual periods. Exit proceeds equal exit enterprise value minus net debt and other claims, adjusted for sponsor ownership.