Q17. (all figures in $m) PECO just bought out TargetCo for an enterprise value of $200. The transaction is financed with $115 debt. The cost of debt is 5% and the Target Co's tax rate is 20%. The project FCF's for the next 3 years are as shown below. Year Target FCF (Sm) O A $60.77 OB. $62.43 1 21 O C. $64.79 D. $66.39 2 22 Assume all of TargetCo's free cash flows will be applied towards debt paydown (after paying interest expenses) and debt paydown happens at the end of the year. What should be the ending debt balance in year 3? 3 23

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Q17. (all figures in $m) PECo just bought out TargetCo for an enterprise value of $200. The
transaction is financed with $115 debt. The cost of debt is 5% and the TargetCo's tax rate is
20%. The project FCF's for the next 3 years are as shown below.
Year
Target FCF (Sm)
O A $60.77
OB. $62.43
O C. $64.79
1
21
D. $66.39
2
Assume all of TargetCo's free cash flows will be applied towards debt paydown (after paying
interest expenses) and debt paydown happens at the end of the year. What should be the
ending debt balance in year 3?
22
3
23
Transcribed Image Text:Q17. (all figures in $m) PECo just bought out TargetCo for an enterprise value of $200. The transaction is financed with $115 debt. The cost of debt is 5% and the TargetCo's tax rate is 20%. The project FCF's for the next 3 years are as shown below. Year Target FCF (Sm) O A $60.77 OB. $62.43 O C. $64.79 1 21 D. $66.39 2 Assume all of TargetCo's free cash flows will be applied towards debt paydown (after paying interest expenses) and debt paydown happens at the end of the year. What should be the ending debt balance in year 3? 22 3 23
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