PECO just acquired TargetCo for $90M. The transaction is financed with $60M of outside debt and the rest with PECO's capital. PECO plans to pay down debt aggressively over the next 4 years using TargetCo's cash flows and then exit at the end of year 4 via an equity sale. TargetCo's EBIT and debt for the next 4 years are as shown in the table below. If PECO can exit at the end of year 4 (after debt pay down) based on an EV/EBIT(Y4) multiple of 11, what would be PECo's IRR for this buyout deal? Assume Target Co has little cash on the balance sheet at the end of year 4, and PECo will not receive any dividend distribution from TargetCo in years 1-4. Year (Sm) EBIT Debt: end of year (after debt paydown) A. 25.9% B. 28.6% O C. 32.5% D. 37.7% O E. 41.2% 0 10 60.00 1 10 55.10 2 11 49.33 3 12 42.65 4 13 35.05

Q16. PECo just acquired TargetCo for $90M. The transaction is financed with $60M of outside debt and the rest with PECo's capital. PECo plans to pay down debt aggressively over the next 4 years using TargetCo's cash flows and then exit at the end of year 4 via an equity sale. TargetCo's EBIT and debt for the next 4 years are as shown in the table below. If PECo can exit at the end of year 4 (after debt pay down) based on an EV/EBIT(Y4) multiple of 11, what would be PECo's IRR for this buyout deal? Assume TargetCo has little cash on the balance sheet at the end of year 4 , and PECo will not receive any dividend distribution from TargetCo in years 1-4. A. 25.9% B. 28.6% C. 32.5% D. 37.7% E. 41.2%