You need to estimate the value of Laputa Aviation. You have the following foreca

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:

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%.

Estimate the company’s total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.)

What is the value of Laputa’s equity? (Do not round intermediate calculations. Enter your answer in millions 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:

Explanation / Answer

In this case assume that there is no future value effect and investment value will not be reduced.

1 2 3 4 5 Total   Earnings before interest, taxes, 72 92 107 112 112   depreciation, and amortization (EBITDA)   Depreciation 12 22 27 32 32   Pretax profit 60 70 80 80 80   Tax at 40% 24 28 32 32 32 EAT 36 42 48 48 48   Depreciation 12 22 27 32 32 NOPAT 48 64 75 80 80   Investment 20 23 26 28 28 Cost in percentage Weightage WACC Value of equity Kd(1-t) 6.00% 0.60 3.60% Ke 19% 0.4 7.60% 49.2196778 Total value of capital % 11.20% Return on invested capital=NOPAT/Book value of invested capital 2.40 2.78 2.88 2.86 2.86 Value of capital 21.4285714 24.8447205 25.7554945 25.5102041 25.5102041 123.049195

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