7. Company Valuation. Icarus Airlines is proposing to go public, and you have been given the task...
Question:
7. Company Valuation. Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 30% of the company's present value, and you believe that at this capital structure the company's debt- holders will demand a return of 6% and stockholders will require 11%. The company is fore- casting that next year's operating cash flow (depreciation plus profit after tax at 40%) will be $68 million and that investment expenditures will be $30 million. Thereafter, operating cash flows and investment expenditures are forecast to grow by 4% a year. (LO5)
a. What is the total value of Icarus?
b. What is the value of the company's equity?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus