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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:
Year 1 2 3 4 Earnings before interest, taxes,
depreciation, and amortization (EBITDA) 90 110 125 130 Depreciation 10 20 25 30 Pretax profit 80 90 100 100 Tax at 40% 32 36 40 40 Investment 19 22 25 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 40%.
a. Estimate the companyâs total value
b. What is the value of Laputaâs equity?
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:
Year | |||||||||||||
1 | 2 | 3 | 4 | ||||||||||
Earnings before interest, taxes, depreciation, and amortization (EBITDA) | 90 | 110 | 125 | 130 | |||||||||
Depreciation | 10 | 20 | 25 | 30 | |||||||||
Pretax profit | 80 | 90 | 100 | 100 | |||||||||
Tax at 40% | 32 | 36 | 40 | 40 | |||||||||
Investment | 19 | 22 | 25 | 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 40%.
a. Estimate the companyâs total value
b. What is the value of Laputaâs equity?
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Collen VonLv2
28 Sep 2019