Chapter $13$ Homework

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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:

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 $15\%,$ its debt yields $6\%,$ 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.

a$.$ Total value

b$.$ Laputa's equity