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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: 4 Year 2 3 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 83 23 $ 103 33 33 $ 118 38 Pretax profit 60 70 80 $ 123 43 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 TT11 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 14%, its debt yields 10%, 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. Answer is complete but not entirely correct. a. Total value $ 670 x b. Laputa's equity $ 402 X

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: 4 Year 2 3 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 83 23 $ 103 33 33 $ 118 38 Pretax profit 60 70 80 $ 123 43 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 TT11 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 14%, its debt yields 10%, 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. Answer is complete but not entirely correct. a. Total value $ 670 x b. Laputa's equity $ 402 X

Essentials Of Investments
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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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: 4 Year 2 3 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 83 23 $ 103 33 33 $ 118 38 Pretax profit 60 70 80 $ 123 43 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 TT11 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 14%, its debt yields 10%, 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. Answer is complete but not entirely correct. a. Total value $ 670 x b. Laputa's equity $ 402 X
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: 4 Year 2 3 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 83 23 $ 103 33 33 $ 118 38 Pretax profit 60 70 80 $ 123 43 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 TT11 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 14%, its debt yields 10%, 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. Answer is complete but not entirely correct. a. Total value $ 670 x b. Laputa's equity $ 402 X
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