Free cash flow valuation Nabor 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 public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 13%, and it has $2,170,000 of debt at market value and $430, 000 of preterred stock in terms of market value. The estimated tree cash flows over the next 5 years. 1 through 5. are given in the table. After year 5. the firm expects its free cash flow to arow by 5% annually a.) Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model b.) Use your finding in part a, along with the data provided above, to find Nabor Industries' common stock value c.) If the firm nans to issue 200 000

Free cash flow valuation Nabor 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 public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 13%, and it has $2,170,000 of debt at market value and $430, 000 of preterred stock in terms of market value. The estimated tree cash flows over the next 5 years. 1 through 5. are given in the table. After year 5. the firm expects its free cash flow to arow by 5% annually a.) Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model b.) Use your finding in part a, along with the data provided above, to find Nabor Industries' common stock value c.) If the firm nans to issue 200 000

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The Tennis Shoe Company has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $56 to $54.30 ($56 is the rights-on price; $54.30 is the ex-rights price, also known as the when-issued price). The company is seeking $17.5 million in additional funds with a per-share subscription price equal to $41. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.) (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Check my work Consider a firm with an EBIT of $866,000. The firm finances its assets with $2,660,000 debt (costing 8 percent and is all tax deductible) and 560,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 360,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $866,000. Calculate the change in the firm's EPS from this change in capital structure. (Do not round intermediate calculations and round your final answers to 2 decimal places.) EPS before EPS after Difference
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Do not provide solution in imge format. and also do not provide plagarised content otherwise i dislike. Consider a firm with an EBIT of $865,000. The firm finances its assets with $2,650,000 debt (costing 7.9 percent and is all tax deductible) and 550,000 shares of stock selling at $6.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 350,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $865,000. Calculate the change in the firm's EPS from this change in capital structure. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. EPS before EPS after Difference
You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows: Bonds $4,000,000 Preferred stocks $2,000,000 Common Stock $6,000,000 To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 7 percent per year (with interest paid semi-annually) at the market price of $1,050. Preferred stock paying a $2.00 dividend can be sold for $25. Common stock for Ranch Manufacturing is currently selling for $55 per share, and the firm paid a $3 dividend last year. Dividends are expected to continue growing at a rate of 5 percent per year for the indefinite future. If the firm’s tax rate is 30…
Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,650,000 debt (costing 8.6 percent, all of which is tax deductible) and 216,000 shares of stock selling at $18 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,700,000 by selling additional shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.) EPS before EPS after Changes in debt $ $ $ 2:19 1.80 0:40
Required Calculate the weighted average cost of capital of Gamma plc. Explain Modigliani and Miller’s argument that in a world of no taxes and no bankruptcy the value of the firm does not depend on its capital structure. Explain how a firm's optimal capital structure is determined according to the static theory of capital structure (i.e. the traditional approach).
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Sierra Vista Industries (SVI) wishes to estimate its cost of capital for the use in the analyzing projects that are similar to those that already exist. The firm’s current capital structure in terms of market value includes 40 percent debt, 10 percent preference shares and 50 percent ordinary shares. The firm’s debt has as average yield to maturity of 8.3 percent. Its preference shares have a GH¢ 70 par value, an 8 percent dividend, and are currently selling for GH¢ 76 per share. SVI’s beta is 1.05, risk-free rate is 4 percent and return on the S&P 500 (the market proxy) is 11.4 percent. SVI is in the 40 percent marginal tax bracket. 1. what are SVI’s pre-tax costs of debt, preference shares and ordinary shares? 2. Calculate SVI’s weighted average cost of capital (WACC) on both a pre-tax and an after-tax basis. Which WACC should SVI use when making investment decisions? 3. SVIS is contemplating a major investment that is expected to increase both its operation and financial…
Free cash flow valuation Nabor 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 public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 11%, and it has $2,380,000 of debt at market value and $480,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 1 through 5, are given in the table, 1. After year 5, the firm expects its free cash flow to grow by 4% annually. a. Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model. b. Use your finding in part a, along with the data provided above, to find Nabor Industries' common stock value. c. If the firm plans to issue 200,000 shares of common stock,…
Fruit Transgenics Engineering is contemplating the purchase of its rival. One of FTE’s genetics engineers is interested in the financing strategy of the buyout. He learned of two plans. Plan A requires 50% equity funds from FTE retained earnings that currently earn 9% per year, with the balance borrowed externally at 6%, based on the company’s excellent stock rating. Plan B requires only 20% equity funds with the balance borrowed at a higher rate of 8% per year.a. Which plan has the lower average cost of capital?b. If the current corporate WACC of 8.2% will not be exceeded, what is the maximum cost of debt capital allowed for each plan? Are these rates higher or lower than the current estimates?

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