You need to estimate the value of Laputa Aviation. You have the following forecasts (in...
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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:
Year
1
2
3
4
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
$
72
$
92
$
107
$
112
Depreciation
12
22
27
32
Pretax profit
60
70
80
80
Tax at 40%
24
28
32
32
Investment
20
23
26
28
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 19%, its debt yields 10%, and it pays corporate tax at 40%.
a. Estimate the companys total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole amount.)
b. What is the value of Laputas equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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