âNabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the publicâ offering, managers at Nabor have decided to make their own estimate of theâ firm's common stock value. Theâ firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.
Theâ firm's weighted average cost of capital is 13% and it has $1,860,000 of debt at market value and $370,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5â years, 2016 throughâ 2020, are given in theâ table, Beyond 2020 toâ infinity, the firm expects its free cash flow to grow by 4% annually.
Year (t) Free Cash Flow (FCF) 2016 $210,000 2017 $270,000 2018 $320,000 2019 $380,000 2020 $420,000
a.ââEstimate the value of Naborâ Industries' entire company by using the free cash flow valuation
model.
b. Use your finding in part aâ, along with the data providedâ above, to find Naborâ Industries' common stock value.
c. If the firm plans to issue 200,000 shares of commonâ stock, what is its estimated value perâ share?
âNabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the publicâ offering, managers at Nabor have decided to make their own estimate of theâ firm's common stock value. Theâ firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.
Theâ firm's weighted average cost of capital is 13% and it has $1,860,000 of debt at market value and $370,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5â years, 2016 throughâ 2020, are given in theâ table, Beyond 2020 toâ infinity, the firm expects its free cash flow to grow by 4% annually.
| Year (t) | Free Cash Flow (FCF) |
| 2016 | $210,000 |
| 2017 | $270,000 |
| 2018 | $320,000 |
| 2019 | $380,000 |
| 2020 | $420,000 |
a.ââEstimate the value of Naborâ Industries' entire company by using the free cash flow valuation
model.
b. Use your finding in part aâ, along with the data providedâ above, to find Naborâ Industries' common stock value.
c. If the firm plans to issue 200,000 shares of commonâ stock, what is its estimated value perâ share?
