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 23% 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 $61 million and that investment expenditures will be $23 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.
a. What is the total value of Icarus? (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.)
Total value$ million
b. What is the value of the company's equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)