Reference no: EM132922120
Problem - Lockheed Corporation, one of the largest defence contractors in the U.S., reported EBITDA of $1290 million in 2019, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital Expenditures in 2019 amounted to $450 million, and working capital was 7% of revenues (which were $13,500 million). The firm had debt outstanding of $3.068 billion (in book value terms), trading at a market value of $3.2 billion, and yielding a pre-tax interest rate of 8%. There were 75 million shares outstanding, trading at $61 per share, and the most recent beta is 1.10. The tax rate for the firm is 30%. (The treasury bond rate is 7%, and the market risk premium is 5.5%.)
The firm expects revenues, earnings, capital expenditures and depreciation to grow at 7% a year from 2020 to 2023, after which the growth rate is expected to drop to 3%. (Capital spending will offset depreciation in the steady state period.) The company also plans to lower its debt/equity ratio to 40% for the steady state (which will result in the pre-tax interest rate dropping to 7 %.)
Estimate the cash flows (FCFF's)?
Estimate the WACC's for the detailed and the terminal phases?
Estimate the value of the firm POP?
Estimate the value of the equity in the firm and the value per share?
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