14 You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Year 1 2 3 4 0.59 points Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 71 $ 91 $ 106 $ 111 11 21 26 31 Pretax profit 60 70 80 80 Tax at 30% 18 21 24 24 Skipped Investment 8 11 14 16 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 50% by equity and 50% by debt. Its cost of equity is 20%, its debt yields 6%, and it pays corporate tax at 30%. eBook Print a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. a. Total value References b. Laputa's equity
14 You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future investments in new plant and working capital: Year 1 2 3 4 0.59 points Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 71 $ 91 $ 106 $ 111 11 21 26 31 Pretax profit 60 70 80 80 Tax at 30% 18 21 24 24 Skipped Investment 8 11 14 16 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 50% by equity and 50% by debt. Its cost of equity is 20%, its debt yields 6%, and it pays corporate tax at 30%. eBook Print a. Estimate the company's total value. Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount. a. Total value References b. Laputa's equity
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 26SP
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Transcribed Image Text:14
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its future
investments in new plant and working capital:
Year
1
2
3
4
0.59
points
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Depreciation
$ 71
$ 91
$ 106
$ 111
11
21
26
31
Pretax profit
60
70
80
80
Tax at 30%
18
21
24
24
Skipped
Investment
8
11
14
16
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
50% by equity and 50% by debt. Its cost of equity is 20%, its debt yields 6%, and it pays corporate tax at 30%.
eBook
Print
a. Estimate the company's total value.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.
b. What is the value of Laputa's equity?
Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.
a. Total value
References
b. Laputa's equity
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