8 Return to question 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: 10 points Year 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 90 $ 110 $ 125 $ 130 10 20 Pretax profit 80 90 100 24 27 19 22 2232 25 30 100 30 27 Tax at 30% Investment 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 30%. 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. > Answer is complete but not entirely correct. a. Total value ᏌᏊ $ 554 X b. Laputa's equity $ 332 ×
8 Return to question 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: 10 points Year 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation $ 90 $ 110 $ 125 $ 130 10 20 Pretax profit 80 90 100 24 27 19 22 2232 25 30 100 30 27 Tax at 30% Investment 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 30%. 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. > Answer is complete but not entirely correct. a. Total value ᏌᏊ $ 554 X b. Laputa's equity $ 332 ×
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 23SP
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Transcribed Image Text:8
Return to question
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:
10
points
Year
1
2
3
4
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Depreciation
$ 90
$ 110
$ 125
$ 130
10
20
Pretax profit
80
90
100
24
27
19
22
2232
25
30
100
30
27
Tax at 30%
Investment
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 30%.
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.
> Answer is complete but not entirely correct.
a. Total value
ᏌᏊ
$
554 X
b. Laputa's equity
$
332 ×
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