If multiple of capital is currently 2.5x, roughly how much does a 0.1x change in multiple of capital impact IRR? Assume a 5 year hold period.

Published On - August 17, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

A 0.1x change on a 2.5 multiple of capital is effectively a 4% change in multiple of capital, since 0.1 / 2.5 = 1 / 25 = 4%.

Therefore, a 4% change in return corresponds to roughly a 4% change in IRR.

With a 5 year hold, a 2.5x multiple of capital is equivalent to a 20% IRR.

If IRR is changing by 4%, then IRR will move by 0.8%, since 4% x 20% = 0.8%.