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Inessa [10]
3 years ago
11

Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management pl

ans to maintain debt at 21% of the company’s present value, and you believe that at this capital structure the company’s debt holders will demand a return of 7% and stockholders will require 14%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 40%) will be $59 million and that investment in plant and net working capital will be $21 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. a. What is the total value of Icarus? (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.)
Business
1 answer:
LUCKY_DIMON [66]3 years ago
7 0

Answer:

Icarus total value: 478,459,899

Explanation:

We will calcualte the WACC to know the cost of capital for the company:

WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})

Ke 0.14

Equity weight 0.79

Kd 0.07

Debt Weight 0.21

t 0.4

WACC = 0.14(0.79) + 0.07(1-0.4)(0.21)

WACC 11.94200%

Now we calcualte the value of the company:

\frac{FCF}{return-growth} = Intrinsic \: Value

59,000,000

<u> (21,000,000) </u>

38,000,000 Free Cash flow ofthe Firm

\frac{38,000,000}{0.11942-0.04} = Intrinsic \: Value

\frac{38,000,000}{0,07942} = Intrinsic \: Value

Value: 478.468.899

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5 0
3 years ago
Sol purchased land as an investment on February 12, 2018 for $85,000. On January 31, 2019, Sol sold the land for $90,000 cash. W
photoshop1234 [79]

Answer:

c)Short term capital gain.

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7 0
3 years ago
Beasley Company currently sells its products for​ $30 per unit. Management is contemplating a​ 10% increase in the selling price
Ray Of Light [21]

Answer:

Explanation:

Selling price per unit (next year) = 30 + 10 % of 30 = $33

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