You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its prof investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment 1 $ 90 10 80 24 19 Year a. Total value b. Laputa's equity 2 $ 110 20 90 27 22 3 $ 125 25 100 30 25 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. La 40% by equity and 60% by debt. Its cost of equity is 12%, its debt yields 7%, 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 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

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
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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:
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Depreciation
Pretax profit
Tax at 30%
Investment
1
$ 90
10
80
24
19
Year
a. Total value
b. Laputa's equity
2
$ 110
20
90
27
22
3
$ 125
25
100
30
25
4
$ 130
30
100
30
27
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 12%, its debt yields 7%, 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.
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 $ 90 10 80 24 19 Year a. Total value b. Laputa's equity 2 $ 110 20 90 27 22 3 $ 125 25 100 30 25 4 $ 130 30 100 30 27 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 12%, its debt yields 7%, 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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