PLEASE SHOW HOW YOU CALCULATE Lockheed Corporation, one of the largest defense contractors in the U$.$S$.,$ reported EBITDA of

$$1290$ million in $1993,$ prior to interest expenses of $$215$ million and depreciation charges of

$$400$ million. Capital Expenditures in $1993$ amounted to $$450$ million, and working capital was

$7\%$ of revenues $($revenues were $$13,500$ million$).$

The firm had debt outstanding of $$3\mathrm{.}068$ billion $($in book value terms$),$ trading at a market value

of $$3\mathrm{.}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 $1\mathrm{.}10.$ 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 $9\mathrm{.}5\%$ 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 $7\mathrm{.}5\%.).$

The equity risk premium $($ERP$)$ from $1994-1998$ is $5\mathrm{.}5\%$ and it drops to $4\mathrm{.}82\%$ after $1998.$

A$.$ Estimate the value of the firm.

B$.$ Estimate the value of the equity in the firm and the value of equity per share.