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) $ 85 $ 105 $ 120 $ 125 Depreciation 25 35 40 45 Pretax profit 60 70 80 80 Tax at 40% 24 28 32 32 Investment 14 17 20 22 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 16%, its debt yields 7%, and it pays corporate tax at 40%. a. Estimate the company’s total value. (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?
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) $ 85 $ 105 $ 120 $ 125 Depreciation 25 35 40 45 Pretax profit 60 70 80 80 Tax at 40% 24 28 32 32 Investment 14 17 20 22 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 16%, its debt yields 7%, and it pays corporate tax at 40%. a. Estimate the company’s total value. (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?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...
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You need to estimate the value of Laputa Aviation. You have the following
Year | |||||||||||||
1 | 2 | 3 | 4 | ||||||||||
Earnings before interest, taxes, |
$ | 85 | $ | 105 | $ | 120 | $ | 125 | |||||
Depreciation | 25 | 35 | 40 | 45 | |||||||||
Pretax profit | 60 | 70 | 80 | 80 | |||||||||
Tax at 40% | 24 | 28 | 32 | 32 | |||||||||
Investment | 14 | 17 | 20 | 22 | |||||||||
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
a. Estimate the company’s total value. (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?
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