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 78 38 40 12 14 $ 78 Year 2 $ 98 48 50 15 17 3 $ 113 53 60 18 20 4 $118 58 60 18 22 From year 5 onward. EBITDA. depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
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 78 38 40 12 14 $ 78 Year 2 $ 98 48 50 15 17 3 $ 113 53 60 18 20 4 $118 58 60 18 22 From year 5 onward. EBITDA. depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
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
1
$ 78
38
40
12
14
Year
a. Total value
b. Laputa's equity
2
$98
48
50
15
17
3
$ 113
53
60
18
20
4
$118
58
60
18
22
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 13%, 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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