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 $ 76 26 50 15 16 Estimate the company's total value Year 2 $96 36 60 18 19 3 $ 111 41 70 21 22 14722 4 $ 116 1422265 70 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 15%, its debt yields 6%, and it pays corporate tax at 30%.
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 $ 76 26 50 15 16 Estimate the company's total value Year 2 $96 36 60 18 19 3 $ 111 41 70 21 22 14722 4 $ 116 1422265 70 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 15%, its debt yields 6%, and it pays corporate tax at 30%.
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
Problem 1PS
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Transcribed Image Text: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
X Answer is complete but not entirely correct.
1,318 x
395 X
1
$ 76
26
a. Total value
b. Laputa's equity
50
15
16
$
Year
2
$ 96
36
60
18
19
3
$ 111
41
70
21
22
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
60% by equity and 40% by debt. Its cost of equity is 15%, its debt yields 6%, and it pays corporate tax at 30%.
4
$116
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.
46
70
21
24
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