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 hasgathered data for performing the valuation using the free cash flow valuation model.After year the firm expects its free cash flow to grow by 5%The firm's weighted average cost of capital is 13%, and it has $2,220,000 of debt at market value and $440,000 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,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?a. The value of Nabor Industries' entire company is $. (Round to the nearest dollar.)b. The value of Nabor Industries' common stock is $. (Round to the nearest dollar.)c. If the firm plans to issue 200,000 shares of common stock, the estimated value per share is $. (Round to the nearest cent.)Data table(Click on the icon here in order to copy the contents of the data table belowinto a spreadsheet.)Year (t) Free cash flow (FCF)1$220,0002$280,0003$360,0004$410,0005$460,000[0PrintDoneX

Value of company can be obtained as the present value of free cash flow and present value of the…

Answered: thered data for performing the…

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

See similar textbooks

Similar questions

The company XYZ S.A. has the following assets:Stocks: Expect to receive cash dividends of $ 750 annually indefinitely. Required yield: 8%Land: expected to sell for $ 235,000 within 6 years. Required yield 9%Machinery: Expect to receive a cash flow of $ 15,000 at the end of year 1, $ 9,500 at the end of year 3, and $ 35,000 at the end of year 5 from the sale of the machinery. Required yield 20%Calculate the value of each asset with the basic valuation model.
You have completed a first pass of a pro-forma balance sheet for Farmer Company. This reveals external financing need of $12 million. The pro-forma income statement shows a Net Income of $100 million and traditionally the firm has paid 40% of its earnings in the form of dividends (which is currently reflected in your pro-forma financials). What payout ratio would eliminate the external financing need of the firm?
Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning to launch a project that will requires an investment of $745 000 next year. Today the company’s stock has market value of $22/share. Lily Fashion House has the current capital structure of 60% in equity and 40% in debt. How much dividend Lily Fashion House can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies?
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will require aninvestment of $175,000 next year. Currently, the share of Giant machinery is $25/share.Required:a) How much dividend Giant Machinery can pay its shareholders this year and what is the dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend.Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidationplan due to the severe contraction of operation due to coronavirus. The company plans to paya total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend.The required rate of return for shareholders is 12%.…
The annual report of 2019 which shows an EBITDA of P5,000,000 and a total liability of P15,550,000. Evidently, the sales grew by 12% annually with a direct effect on the growth of free cash flow of 12% yearly. Last year, the free cash flow was reported to be P3,500,000. The weighted average cost of capital is 10%. Using the financial model, how much is the value of the equity?
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will requires aninvestment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required: How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies.
A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are $100 million, and it has total assets of $50 million. What is its ROE? Find the following values and solve all the subparts. Compounding/discounting occurs annually. a. An initial $500 compounded for 10 years at 6%b. An initial $500 compounded for 10 years at 12%c. The present value of $500 due in 10 years at 6%d. The present value of $1,552.90 due in 10 years at 12% and at 6%e. Define present value and illustrate it using a time line with data from Part d. How arepresent values affected by interest rates?
ACME Software Company has CURRENT (i.e. today; year "zero") market value of its venture's assets of $250K (effectively its current equity valuation cash flow). Forecasted cash-flows for next 5 years is as follows: Year 1: ($350,000), i.e. negative Year 2: ($100,000) Year 3: $250,000, i.e. positive Year 4: $450,000 Year 5: $500,000 Year 6+: Assume $600K in year 6, growing at 6% annually thereafter Years 1-5 discount rate of 40% Years 6+ assume 15% given company should be more mature, less risky, and more predictable. Given the same information as the previous question, how much %ownership (rounded) would a $250,000 investment fetch assuming the NPV of the ACME Software (the pre-money valuation) you just calculated?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS