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 $1,500,000 of debt at market value and $400,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 years, 2013 through 2017, are given below. Beyond 2017 to infinity, the firm expects its free cash flow to grow by 3% annually. Year Free Cash Flow (FCF) 2013 $200,000 2014 250,000 2015 310,000 2016 350,000 2017 390,000 (i) Estimate the value of Nabor Industries’ entire company by using the free cash flow valuation model. (ii) Use your finding in part i, along with the data provided above, to find Nabor Industries’ common stock value. (iii) 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 11%, and it has $1,500,000 of debt at market value and $400,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 years, 2013 through 2017, are given below. Beyond 2017 to infinity, the firm expects its free cash flow to grow by 3% annually. Year Free Cash Flow (FCF) 2013 $200,000 2014 250,000 2015 310,000 2016 350,000 2017 390,000 (i) Estimate the value of Nabor Industries’ entire company by using the free cash flow valuation model. (ii) Use your finding in part i, along with the data provided above, to find Nabor Industries’ common stock value. (iii) If the firm plans to issue 200,000 shares of common stock, what is its estimated value per share?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 5P
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Question
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
flow
$1,500,000 of debt at market value and $400,000 of preferred stock at its assumed market
value. The estimated free cash flows over the next 5 years, 2013 through 2017, are given
below. Beyond 2017 to infinity, the firm expects its free cash flow to grow by 3% annually.
| Year | Free Cash Flow (FCF) |
| 2013 | $200,000 |
2014 250,000
2015 310,000
2016 350,000
2017 390,000
(i) Estimate the value of Nabor Industries’ entire company by using the free cash flow
| valuation model. |
| (ii) Use your finding in part i, along with the data provided above, to find Nabor Industries’ common stock value. | |
| (iii) If the firm plans to issue 200,000 shares of common stock, what is its estimated value per share? | |
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