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 40% Investment Total value $ million Laputa's equity 1 4 77 97 $112 $117 $ 27 37 42 50 60 70 24 28 18 21 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 14%, its debt yields 10%, and it pays corporate tax at 40%. million Year 2 3 20 15 a. Estimate the company's total value. (Do not round Intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) 47 70 28 23 b. What is the value of Laputa's equity? (Do not round Intermediate calculations. Enter your answer in million rounded to 2 decimal places.)

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 40% Investment Total value $ million Laputa's equity 1 4 77 97 $112 $117 $ 27 37 42 50 60 70 24 28 18 21 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 14%, its debt yields 10%, and it pays corporate tax at 40%. million Year 2 3 20 15 a. Estimate the company's total value. (Do not round Intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.) 47 70 28 23 b. What is the value of Laputa's equity? (Do not round Intermediate calculations. Enter your answer in million rounded to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 11P

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