You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its prof investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment 1 $ 90 10 80 24 19 Year a. Total value b. Laputa's equity 2 $ 110 20 90 27 22 3 $ 125 25 100 30 25 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. La 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 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
You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its prof investments in new plant and working capital: Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 30% Investment 1 $ 90 10 80 24 19 Year a. Total value b. Laputa's equity 2 $ 110 20 90 27 22 3 $ 125 25 100 30 25 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. La 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 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
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...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT