You can purchase ABC for $400 million (4x the companys current EBITDA). You plan on financing the sale with 85% debt with an interest cost of 12%. You anticipate that EBITDA will grow at 11% for the next three years. Assume that the annual depreciation expense will be 40 million for ABC each year for the next three years. You do not anticipate that it will require any additional CAPEX or working capital for the next three years. You also want to purchase XYZ to combine the two firms (ABC & XYZ = ABCXYZ) and later sell ABCXYZ for 5x EBITDA at the end of year 3. You can purchase XYZ for 40 million today (4x companys current EBITDA). XYZ currently has an EBITDA of 10 million and is expected to grow at 15% for the next three years. You plan to fully finance the 40 million acquisitions price of XYZ with debt, which will also have an interest cost of 12%. The annual Depreciation expense for XYZ is 3 million each year for the next three years. You do not anticipate that you will have any other CAPEX needs in the future. All of the Free Cash flow that the firm will generate will go towards paying off the debt. Assume a corporate tax rate of 21%.

A. What is the Enterprise Value, Debt Value, and the Equity Value at year 0 and year 5?

B. What is the rate of return on this project?