In an acquisition, cost of capital is one of the most important assumptions that go into determining whether the deal is favorable or not.

Cost of cash is the cheapest, followed by cost of debt, and then cost of equity (most expensive).

But when it’s a private equity firm that’s the buyer in the deal, they actually prefer using debt over cash in all of their transactions. Why is that?

Hear me explain the difference between an M&A deal and a LBO deal when thinking about cost of capital.

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