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: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 40% Investment Total value $ million Laputa's equity 1 4 77 97 $112 $117 $ 27 37 42 50 60 70 24 28 18 21 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 14%, its debt yields 10%, and it pays corporate tax at 40%. million Year 2 3 20 15 a. Estimate the company's total value. (Do not round Intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) 47 70 28 23 b. What is the value of Laputa's equity? (Do not round Intermediate calculations. Enter your answer in million rounded to 2 decimal places.)

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: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 40% Investment Total value $ million Laputa's equity 1 4 77 97 $112 $117 $ 27 37 42 50 60 70 24 28 18 21 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 14%, its debt yields 10%, and it pays corporate tax at 40%. million Year 2 3 20 15 a. Estimate the company's total value. (Do not round Intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) 47 70 28 23 b. What is the value of Laputa's equity? (Do not round Intermediate calculations. Enter your answer in million rounded to 2 decimal places.)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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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: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment 1 $ 87 17 70 21 16 a. Total value b. Laputa's equity Year 2 $ 107 27 80 24 19 3 $ 122 238NN ONN 32 90 27 22 4 $ 127 37 90 27 24 558 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 18%, its debt yields 9%, and it pays corporate tax at 30%. 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.
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