You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its futur nvestments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% 1 $88 28 60 18 Year 2 $ 108 38 70 21 3 $123 43 80 24 4 $128 48 80 24
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its futur nvestments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% 1 $88 28 60 18 Year 2 $ 108 38 70 21 3 $123 43 80 24 4 $128 48 80 24
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
$ 88
28
60
18
17
Year
a. Total value
b. Laputa's equity
2
$ 108
38
70
21
20
3
$123
43
80
24
23
4
$ 128
48
80
24
25
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
50% by equity and 50% by debt. Its cost of equity is 19%, 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.
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