Assume today is $12/31/2024.$ Avanco Partners purchases today Parley Inc. for $7\mathrm{.}0$x projected $2025$

EBITDA, using a mix of debt $(60\%)$ and equity $(40\%).$ Parley$$s pre$-$closing debt and cash balances are both

zero. The annual interest rate on the debt is $10\%.$ Assume a $35\%$ corporate tax rate.

Parley Inc.$$s projected operating and investing assumptions are the following:

$-$ $$100$ M in sales in $2025$ growing $10\%$ per year for the next $7$ years

$-$ Constant $35\%$ EBITDA margin

$-$ Annual depreciation and amortization: $$18$ M

$-$ Annual change in net working capital: $$4$ M

$-$ Annual capital expenditures: $12\%$ of sales

Every year, the cash available for debt repayment is used to repay the debt. Assume that the interest

expense is calculated on the beginning debt balance of each year and that there is no income on any

cash balance.

Avanco plans to sell Parley Inc. in $5$ years at $7\mathrm{.}5$x projected $2030$ EBITDA.

What is Avanco$$s expected return on its acquisition?

Advice: build a $$sources and uses$$ table, projected income statements, projected cash flow statements

and a debt schedule showing the evolution of the debt.

Note: $$M$$ means million$($s$)$

Ignore impact of goodwill on tax and cash flows $($for information, when a company is bought for more

than its book value, an asset called goodwill appears on the acquirer$$s balance sheet at the time of the

acquisition, which is amortized over time for tax purposes$).$ Also ignore any capital gain tax.