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: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation 1 $ 82 12 70 Year 21 11 2 $ 102 22 80 3 $ 117 27 Pretax profit Tax at 30% Investment From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financ 24 14 4 $ 122 32 90 27 19 90 27 17
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: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation 1 $ 82 12 70 Year 21 11 2 $ 102 22 80 3 $ 117 27 Pretax profit Tax at 30% Investment From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financ 24 14 4 $ 122 32 90 27 19 90 27 17
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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:
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Depreciation
Pretax profit
Tax at 30%
Investment
X Answer is complete but not entirely correct.
a. Total value
b. Laputa's equity
1
$ 82
12
70
21
11
$
$
Year
752
376 x
2
$ 102
22
80
24
14
From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed
50% by equity and 50% by debt. Its cost of equity is 13%, its debt yields 9%, and it pays corporate tax at 30%.
3
$ 117
27
90
27
17
a. Estimate the company's total value.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.
b. What is the value of Laputa's equity?
Note: Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.
4
$ 122
32
90
27
19
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