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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F04eb65a4-486c-4366-a473-56d37146526d%2Fda025420-16c4-4699-a22e-c5e2743b9415%2Firz2rx_processed.png&w=3840&q=75)
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
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education