I have computed the “Leveraged” and “unleveraged” returns of a simple investment and I have found out the following paradox
IRR unleveraged = 10,9%
IRR leveraged = 28%
Cost of Debt 9% and 80% debt
However if I increase the cost of debt to the unlevereraged IRR (10,9%), then the IRR leveraged is 24% and further is the cost of debt is greater that the unleveraged IRR (eg. Cost of debt 12%) , then the leveraged IRR is still 22%.
It does not make any sense?? Any ideas….
Could send you a simple xls to play around
([email protected])
IRR unleveraged = 10,9%
IRR leveraged = 28%
Cost of Debt 9% and 80% debt
However if I increase the cost of debt to the unlevereraged IRR (10,9%), then the IRR leveraged is 24% and further is the cost of debt is greater that the unleveraged IRR (eg. Cost of debt 12%) , then the leveraged IRR is still 22%.
It does not make any sense?? Any ideas….
Could send you a simple xls to play around
([email protected])