the task of estimating the value of its equity

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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. Management plans to maintain debt at 40% 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 13%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 21%) will be $78 million and that investment expenditures will be $40 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.

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What is the total value of Icarus?

What is the value of the company’s equity?

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