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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
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:
Year | ||||
1 | 2 | 3 | 4 | |
Earnings before interest, taxes, depreciation, and amortization (EBITDA) | 90 | 110 | 125 | 130 |
Depreciation | 10 | 20 | 25 | 30 |
Pretax profit | 80 | 90 | 100 | 100 |
Tax at 40% | 32 | 36 | 40 | 40 |
Investment | 19 | 22 | 25 | 27 |
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 12%, its debt yields 7%, and it pays corporate tax at 40%.
a. Estimate the companys total value
b. What is the value of Laputas equity?
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