HW Cost of Capital 3 You need to estimate the value of Laputa Aviation. You have
ID: 2807550 • Letter: H
Question
HW Cost of Capital 3 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 Earnings before interest, taxes, depreciation, and amortization (EBITDA) Depreciation Pretax profit Tax at 40% Investment 86 26 60 24. 15 106 36 70 28 18 121 41 80 32 21 126 46 80 32 eBook 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 17%, its debt yields 8%, and it pays corporate tax at 40%. Print a. Estimate the company's total value. (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.) References Total value million b. What is the value of Laputa's equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Laputa's equity million .Explanation / Answer
a) statement showing FCF
Statement showing WACC
Statement showing value of firm
Thus value of firm = $553.52 million
b) Value of equity = 553.52 * 60% =$332.11 million
Particulars 1 2 3 4 Pretax profit 60 70 80 80 Tax @ 40% 24 28 32 32 PAT 36 42 48 48 Add: Depreciation 26 36 41 46 Operating cash flow 62 78 89 94 Less: investment 15 18 21 23 FCF 47 60 68 71Related Questions
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