Lockheed Corporation, one of the largest defense contractors in the U.S., reported EBITDA of $1,290 million in 1993, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital expenditures in 1993 amounted to $450 million 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 pre-tax 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 from 1994 to 1998, after which the growth rate is expected to drop to 4%. (Capital spending will offset depreciation in the steady-state period.) The company also plans to lower its debt/equity ratio to 50% for the steady state (which will result in the pre-tax 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.