Problem 13-25 Company Valuation (LO5) 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 Earnings before interest, taxes, depreciation, and amortization (EBITDA) 81 101 116 121 Depreciation 21 31 36 41 Pretax profit 60 70 80 80 Tax at 40% 24 28 32 32 Investment 10 13 16 18 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 40% by equity and 60% by debt. Its cost of equity is 12%, its debt yields 8%, and it pays corporate tax at 40%. a. Estimate the company's total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) > Answer is complete but not entirely correct. Total value $ 497 million b. What is the value of Laputa's equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Laputa's equity million
Problem 13-25 Company Valuation (LO5) 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 Earnings before interest, taxes, depreciation, and amortization (EBITDA) 81 101 116 121 Depreciation 21 31 36 41 Pretax profit 60 70 80 80 Tax at 40% 24 28 32 32 Investment 10 13 16 18 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 40% by equity and 60% by debt. Its cost of equity is 12%, its debt yields 8%, and it pays corporate tax at 40%. a. Estimate the company's total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) > Answer is complete but not entirely correct. Total value $ 497 million b. What is the value of Laputa's equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Laputa's equity million
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
Section: Chapter Questions
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Transcribed Image Text:Problem 13-25 Company Valuation (LO5)
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
Earnings before interest, taxes, depreciation, and
amortization (EBITDA)
81
101
116
121
Depreciation
21
31
36
41
Pretax profit
60
70
80
80
Tax at 40%
24
28
32
32
Investment
10
13
16
18
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
40% by equity and 60% by debt. Its cost of equity is 12%, its debt yields 8%, and it pays corporate tax at 40%.
a. Estimate the company's total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the
nearest whole amount.)
> Answer is complete but not entirely correct.
Total value
$
497 million
b. What is the value of Laputa's equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal
places.)
Laputa's equity
million
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