Private Equity - reduction in debt

CFA Level II Alternative Investments
#1

Private Equity

B4. P.76 (Schweser) Exit value = investment cost + earnings growth + increase in price multiple + reduction in debt

Is reduction in debt always be view as on of the target for the private equity transaction? I thought we still need to consider WACC??

Thanks.

#2

Exit value = investment cost + earnings growth + increase in price multiple + reduction in debt

Reduction in debt always be view as on of the target for the private equity transaction?

Reducing debt means you have to pay less for the initial money you have, now exit value is the value of your investment, ideally if you didnt do anythign with the multiple this should be good. But it is the total value you can get out of the company. This formula has increase in multiple which is total valuation increase due to muiple. the reduction in debt means you get more after liquidating the money, it is same as keeping money at risk free (thr extramoney).

I thought we still need to consider WACC?? We would pay the debt on interest at WACD, how does WACC comes into play here? if we inveated 100, earning growth is 10, increase in multiple into earning, and reduced dent is same as total company value - debt.