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Problem - 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 33% 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 21%) will be $71 million and that investment in plant and net working capital will be $33 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.
Required -
a. What is the total value of Icarus?
b. What is the value of the company's equity?
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