Lockheed, one of the largest defense contractors in the United States, reported EBITDA of $1,290 million in a recent financial year, prior to interest expenses of $215 million and depreciation charges of $400 million.

Capital expenditures amounted to $450 million during the year, and working capital was 7% of revenues (which were $13,500 million). The firm had debt outstanding of $3.068 billion (in book value terms), trading at a market value of $3.2 billion, and yielding a pretax interest rate of 8%. There were 62 million shares outstanding, trading at $64 per share, and the most recent beta is 1.10. The tax rate for the firm is 40%. (The Treasury bond rate is 7%.) The firm expects revenues, earnings, capital expenditures, and depreciation to grow at 9.5% a year for the next five years, after which the growth rate is expected to drop to 4%. (Even though this is unrealistic, you can assume that capital spending will offset depreciation in the stable growth period.) The company also plans to lower its debt/equity ratio to 50% for the steady state (which will result in the pretax interest rate dropping to 7.5%).

a. Estimate the value of the firm.

b. Estimate the value of the equity in the firm and the value per share.