Clearstone is considering the acquisition of Flanders.

Pro Forma Income Statement	2016	2017	2018	2019	2020
EBITDA	$11,000,000	$12,100,000	$13,310,000	$14,641,000	$16,105,100
Less: Depreciation	($3,900,000)	$(4,300,000)	($4,700,000)	($5,100,000)	$(5,500,000)
EBITDA	$7,100,000	$7,800,000	$8,610,000	$9,541,000	$10,605,100
Less: Interest	($6,300,000)	($6,235,000)	($6,040,288.80)	($5,690,457.10)	($5,159,103.90)
Earnings before taxes	$800,000	$1,564,400	$2,569,711.20	$3,850,542,90	$5,445,996.10
Less: Taxes	($240,000)	($469,320)	($770,913,36)	($1,155,162.87)	($1,633,798.83)
Net income	$560,000	$1,095,080	$1,798,797.84	$2,695,380.03	$3,812,197.27

Firm has to spend $4 million a year for capital expenditures and new capital would have a ten-year depreciable life. The firm can be purchased for five times the firm's 2015 EBITDA of $10 million and resold in five years for the same multiple of the firm's year 5 EBITDA. The company will finance 90% of the purchase price using debt that carries a 14% rate of interest. The debt will require a cash sweep so that all available cash flow will go toward the repayment of the note. A tax rate of 30% is assumed. No net new investments in working capital.

a) What is the projected enterprise value of Flanders in five years? What is the estimated value of Clearstone's equity in the firm at the end of firve year if everything works out as planned?

b) What rate of return should Clearstone expect on its equity in the acquisition under the projections made above?