LockBenz Corporation, one of the largest defense contractors in the world, reported EBITDA[1] of $1,290 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. Revenues in 2019 were $13,500 million. The firm expects revenues, earnings, capital expenditures and depreciation to grow at 8% a year from 2019 to 2024, after which time the growth rate is expected to drop to 3%. Capital spending is expected to offset depreciation in the stable state period. The debt outstanding was $3.5 billion (in book value terms) but was trading at a market value of $3 billion. The company’s debt is rated AA. Similar AA bonds have a yield to maturity of 8%. The company’s stock has a beta of 1.2, the market risk premium is 5% and treasury bonds have a yield of 6%. The company’s effective marginal tax rate was 40%. Assume the company’s optimal debt ratio is 40%. What is the book value of capital?
LockBenz Corporation, one of the largest defense contractors in the world, reported EBITDA[1] of $1,290 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. Revenues in 2019 were $13,500 million.
The firm expects revenues, earnings, capital expenditures and depreciation to grow at 8% a year from 2019 to 2024, after which time the growth rate is expected to drop to 3%. Capital spending is expected to offset depreciation in the stable state period.
The debt outstanding was $3.5 billion (in book value terms) but was trading at a market value of $3 billion. The company’s debt is rated AA. Similar AA bonds have a yield to maturity of 8%. The company’s stock has a beta of 1.2, the market risk premium is 5% and treasury bonds have a yield of 6%. The company’s effective marginal tax rate was 40%. Assume the company’s optimal debt ratio is 40%.
What is the book value of capital?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
