Vijay You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of dollars) of its profits and of its futureinvestments in new plant and working capital:Year1234Earnings before interest, taxes, depreciation, and amortization (EBITDA)Depreciation$ 75$ 9515Pretax profit60Tax at 30%Investment181722222$ 110$ 11525303570808024242325From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed40% by equity and 60% by debt. Its cost of equity is 16%, 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.a. Total valueb. Laputa's equity

Approach to solving the question:1. Calculate FCFF for each year using the provided financial data…

Answered: You need to estimate the value of…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.15E

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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 Answer is complete but not entirely correct. a. Total value b. Laputa's equity 1 $ 83 $ $ 23 60 625 375 18 12 Year From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. its cost of equity is 14%, its debt yields 10%, and it pays corporate tax at 30% 2 $ 103 33 70 21 15 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. $ 118 38…
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 Answer is complete but not entirely correct. Total value b. Laputa's equity $ 1 $ 81 21 60 18 10 3 Year 893 224 2 $ 101 31 70 21 13 3 16 35 种味道 $ 116 36 80 24 16 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 8%, and it pays corporate tax at 30% $ 121 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…
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 Answer is complete but not entirely correct. a. Total value b. Laputa's equity $ 70 30 $ 40 12 9 428 257 X Year 2 $90 40 50 15 12 3 $105 From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40 % by debt. Its cost of equity is 11%, its debt yields 7%, and it pays corporate tax at 30%. 45 60 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.…
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 Answer is complete but not entirely correct. 1 $ 74 24 a. Total value i b. Laputa's equity 50 15 18 326 652 € Year 2 $94 $ 189 34 60 18 21 39 70 21 24 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 17%, its debt yields 8 %, and it pays corporate tax at 30%. 4 $ 114 44 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…
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 Check my work mode: This shows what is correct or incorrect for the work you have comp Answer is complete but not entirely correct. 757 a. Total value b. Laputa's equity $ $ ⓇⓇ 1 $.73 33 40 12 19 70 Year From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Laputa is financed 60% by equity and 40% by debt. Its cost of equity is 18%, its debt yields 9%, and it pays corporate tax at 30% 2 $93 43 50 15 22 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…
Given the initial investment in a factory processing equipment as Ghc500,037. Let the opportunity cost of capital for the industry be 10% p.a. Assuming that the equipment is capable of generating an after-tax returns of Ghc115,000 for the first 5 years and Ghc65000 for the 6th year and Ghc53400 for the 7th year. Find the Net Present Value (NPV) Determine the Internal Rate of Return Identify three ways in which the Net Present value is superior to the Internal Rate of return as investment criteria
Given the initial investment in a factory processing equipment as Ghc500,037. Let the opportunity cost of capital for the industry be 10% p.a. Assuming that the equipment is capable of generating an after-tax returns of Ghc115,000 for the first 5 years and Ghc65000 for the 6th year and Ghc53400 for the 7th year. a. Find the Net Present Value (NPV) b. Determine the Internal Rate of Return c. Identify three ways in which the Net Present value is superior to the Internal Rate of
Calculate the:Net Present Value (NPV) of the investment and comment on the viability of the investment project. The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567
Given the initial investment in a factory processing equipment as Ghc500,037. Let the opportunity cost of capital for the industry be 10% p.a. Assuming that the equipment is capable of generating an after-tax returns of Ghc115,000 for the first 5 years and Ghc65000 for the 6 year and Ghe53400 for the 7th year. a. Find the Net Present Value (NPV) b. Detemine the Internal Rate of Return c. Identify three ways in which the Net Present value is superior to the Internal Rate of return as investment criteria
You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000
Calculate the Accounting Rate of Return (ARR) of the investment Internal rate of return (IRR) The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567
Assume the following expected annual cash flows from operating a office property investment: Year 1 = $225,000; Year 2= $236,500; Year 3 = $248,000; Year 4 = $259,500; Year 5 = $271,000. If the net proceeds from the sale in Year 5 are $4.9 million and the property can be purchased today for 4.25 million, what is the expected return on the investment? 8.38% 10.00% O 12.15% 9.14%

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