Why do LBOs use massive amounts of debt in their acquisitions? Suppose an LBO acquires a firm for $25,000,000 and exits five years later by selling the firm for $48,000,000. Find the IRR for debt-to-equity ratios of D/E = 0, 1, and 4 in the initial investment. For simplicity, assume the final amount of debt equals the initial value of debt (in other words, only debt service was being paid annually during the term of the investment).

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