Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its

image text in transcribed

You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its investments in new plant and working capital: Year 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 80 $ 100 $ 115 $ 120 20 30 35 40 Pretax profit 60 70 80 80 Tax at 30% 18 21 24 24 Investment 12 15 18 20 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year 4 levels. Laputa is finand 50% by equity and 50% by debt. Its cost of equity is 15%, its debt yields 7%, and it pays corporate tax at 30%. a. Estimate the company's total value. Note: Do not round intermediate calculations. b. What is the value of Laputa's equity? Note: Do not round intermediate calculations. a. Total value $ 1,044,834,000 b. Laputa's equity $ 544,834,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Institutions Management A Risk Management Approach

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

8th edition

978-0078034800, 78034809, 978-0071051590

More Books

Students also viewed these Finance questions