Ignatius Industries is considering going public but is still determining a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Ignatius have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for valuating using the free cash flow valuation model. The firm’s weighted average cost of capital is 12%, and it has $1,500,000 of debt at market value and $550,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 year, 2024 through 2028, are given below. Beyond 2028 to infinity, the firm expects its free cash flow to grow by 3% annually.
Ignatius Industries is considering going public but is still determining a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Ignatius have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for valuating using the free cash flow valuation model. The firm’s weighted average cost of capital is 12%, and it has $1,500,000 of debt at market value and $550,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 year, 2024 through 2028, are given below. Beyond 2028 to infinity, the firm expects its free cash flow to grow by 3% annually.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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- Ignatius Industries is considering going public but is still determining a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Ignatius have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for valuating using the
free cash flow valuation model.
The firm’s weighted average cost of capital is 12%, and it has $1,500,000 of debt at market value and $550,000 of
|
Year |
FCF |
|
2024 |
$250,000 |
|
2025 |
325,000 |
|
2026 |
810,000 |
|
2027 |
950,000 |
|
2028 |
1,690,000 |
- Estimate the value of Ignatius Industries’ entire company by using the free cash flow valuation model.
- Use your finding in part a, along with the data provided above, to find Ignatius Industries’ common stock value.
- If the firm plans to issue 100,000 shares of common stock, what is its estimated value per share
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