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
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 26SP
Related questions
Question
Nikul
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781285867977
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781285867977
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning