Company Valuation – Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 30% of the company’s present value, and you believe that at this capital structure the company’s debtholders will demand a return of 6% and stockholders will require 11%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 40%) will be $68 million. And that investment expenditures will be $30 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.(L013-5).
A) What is the total value of Icarus?
B) What is the value of the company’s equity?
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