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Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity.
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 27% of the company’s present value, and you believe that at this capital structure the company’s debtholders will demand a return of 5% and stockholders will require 12%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 40%) will be $65 million and that investment expenditures will be $27 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.