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 nvestments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment $ 79 29 50 15 13 Year 2 $.99 39 60 18 16 3 $ 114 44 70 21 19 4 $ 119 49 70 21 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 40% by debt. Its cost of equity is 12%, its debt yields 8%, 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 nvestments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment $ 79 29 50 15 13 Year 2 $.99 39 60 18 16 3 $ 114 44 70 21 19 4 $ 119 49 70 21 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 40% by debt. Its cost of equity is 12%, its debt yields 8%, 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
$ 79
29
50
15
13
Year
a. Total value
b. Laputa's equity
2
3
$.99 $ 114
44
70
21
19
29986
39
60
18
16
4
$ 119
49
70
21
21
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 12%, its debt yields 8%, 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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