You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its investments in new plant and working capital: Year 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 80 $ 100 $ 115 $ 120 20 30 35 40 Pretax profit 60 70 80 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year 4 levels. Laputa is finan 50% by equity and 50% by debt. Its cost of equity is 15%, its debt yields 7%, and it pays corporate tax at 30%. a. Estimate the company's total value. Note: Do not round intermediate calculations. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations.
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its investments in new plant and working capital: Year 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 80 $ 100 $ 115 $ 120 20 30 35 40 Pretax profit 60 70 80 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year 4 levels. Laputa is finan 50% by equity and 50% by debt. Its cost of equity is 15%, its debt yields 7%, and it pays corporate tax at 30%. a. Estimate the company's total value. Note: Do not round intermediate calculations. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations.
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
investments in new plant and working capital:
Year
1
2
3
4
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Depreciation
$ 80
$ 100
$ 115
$ 120
20
30
35
40
Pretax profit
60
70
80
80
Tax at 30%
18
21
24
24
Investment
12
15
18
20
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year 4 levels. Laputa is finand
50% by equity and 50% by debt. Its cost of equity is 15%, its debt yields 7%, and it pays corporate tax at 30%.
a. Estimate the company's total value.
Note: Do not round intermediate calculations.
b. What is the value of Laputa's equity?
Note: Do not round intermediate calculations.
a. Total value
$ 1,044,834,000
b. Laputa's equity
$
544,834,000
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