Question
Full answer needed for this question comes from Text book Applied Corporate Finance ISBN 978-1-118-80893-1 but I cant figure out how to structure it. Lockheed,
Full answer needed for this question comes from Text book Applied Corporate Finance ISBN 978-1-118-80893-1 but I cant figure out how to structure it.
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. Captial 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 $3.2 billion, and yielding a pretax interest rate of 8%. There was 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 deprecation in the stable-growth period.) The company also plans to lower its debt/ewuity 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.
* risk premium 5.5% and tax rate is 40%
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