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 12%, and it has $2,510,000 of debt at market value and $500,000 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 attached. 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, what is its estimated value per share?
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 12%, and it has $2,510,000 of debt at market value and $500,000 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 attached. 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, what is its estimated value per share?
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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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 12%, and it has $2,510,000 of debt at market value and $500,000 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 attached. 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, what is its estimated value per share?
shares of common stock, what is its estimated value per share?
Transcribed Image Text:# Data Table
This table presents projected Free Cash Flow (FCF) over a five-year period. It allows users to copy the data into a spreadsheet by clicking on the designated icon.
| Year (t) | Free Cash Flow (FCF) |
|----------|----------------------|
| 1 | $300,000 |
| 2 | $360,000 |
| 3 | $410,000 |
| 4 | $450,000 |
| 5 | $490,000 |
## Explanation
- **Free Cash Flow (FCF):** This represents the amount of cash generated by a business that is available for distribution among all the securities holders, including equity holders and debt holders.
- **Years (t):** The periods over which the cash flows are projected.
To utilize this data in further analyses or reporting, click the copy icon to transfer the contents into your preferred spreadsheet application.
### Actions
- **Print:** Allows you to print the data table.
- **Done:** Closes the dialog box.
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