2

LG reported EBITDA of $1500 million in 2020, prior to interest expenses of $300 million and depreciation charges of $500 million. Capital expenditures in 2020 amounted to $600 million, and working capital was 7% of revenues (which were $15000 million in 2020). The firm had debt outstanding of $3200 million (in book value terms), and yielding a pretax interest rate of 8%. There were 70 million shares outstanding, trading at $60 per share, and the most recent beta was 1.2 . The tax rate for the firm was 35%. (The Treasury bond rate was 6%, and the risk premium was 4.5%.)

The firm expected revenues, earnings, capital expenditures and depreciation to grow at 8.5% a year from 2020 to 2024, after which the growth rate was expected to drop to 3%. (Capital spending will be 120% of depreciation in the steady state period.) The company also planned to lower its debt/capital ratio to 30% for the steady state (which will result in the pretax interest rate dropping to 7.5%). EBITDA = EBIT + Depreciation

1. Estimate the value of the firm.
2. Estimate the value of the equity in the firm, and the value per share.