Question

In: Finance

Nabor Industries is considering going public but is unsure of a fair offering price for the...

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 15 % and it has $1,830,000 of debt at market value and $370,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5? years, 2016 through? 2020, are given in the? table. Beyond 2020 to? infinity, the firm expects its free cash flow to grow by 5 % annually.

2016

?$280,000

2017

?$320,000

2018

?$360,000

2019

?$430,000

2020

$470,000

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?

Solutions

Expert Solution

1)Terminal value at year 2020 :FCF 2020(1+g)/(WACC-G)

              470000(1+.05)/(.15-.05)

               470000*1.05 /.10

                4935000

Present value of FCF =[PVF15%,1*FCF1]+[PVF15%,2*FCF2]+/..........+[PVF15%,5*Terminal value]

=[.86957*280000]+[.75614*320000]+[.65752*360000]+[.57175*430000]+[.49718*470000]+[.49718*4935000]

= 243479.6+ 241964.8+ 236707.2+ 245852.5+ 233674.6+ 2453583.3

= 3655262

b)Value of common stock =Value of firm -value of debt -value of preferred stock

       = 3655262 - 1830000-370000

       =1455262

c)price per share =1455262/ 200000

             = $ 7.28 per share


Related Solutions

Nabor Industries is considering going public but is unsure of a fair offering price for the...
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 $2,190,000 of debt at market value...
Nabor Industries is considering going public but is unsure of a fair offering price for the...
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 %11%​, and it has $ 3 comma 360 comma 000$3,360,000...
Nabor Industries is considering going public but is unsure of afair offering price for the...
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 the public offering, managers at Nabor ave 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 $3,870,000 of debt and $770,000...
Brees Industries is considering going public but is unsure of a fair offering price for the...
Brees 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 Brees have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for performing the valuating using the free cash flow valuation model. The firm’s weighted average cost of capital is 10%, and it has $800,000 of debt at market value...
Free cash flow valuation   Nabor Industries is considering going public but is unsure of a fair...
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 $2,480,000...
Free cash flow valuation   Nabor Industries is considering going public but is unsure of a fair...
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 $2,480,000...
What is involved in "going public"? A- Offering goods and services to the public B- Selling...
What is involved in "going public"? A- Offering goods and services to the public B- Selling stock to the public in the primary market C- Public speaking D- Revealing corporate secrets to the public
JK Manufacturing is considering a new product and is unsure about its price as well as...
JK Manufacturing is considering a new product and is unsure about its price as well as the variable cost associated with it. JK's marketing department believes that the firm can sell the product for $500 per unit, but feels that if the initial market response is weak, the price may have to be 20% lower in order to be competitive with existing products. The firm's best estimates of its costs are fixed coists of $3.6 million and variable cost of...
The owners of CSC Inc., a privately held company, are considering a public offering of the...
The owners of CSC Inc., a privately held company, are considering a public offering of the company’s common stock as a means of acquiring additional funds. Prior to making a decision about a public offering, the owners want to have a lengthy conversation with you, CSC’s chief financial officer. You have already informed the owners of the reporting requirements of the Securities and Exchange Commission, including the necessity for audited financial statements. Now the owners wish to discuss with you...
The company WayABC went public last year with its initial public offering price at $29, but...
The company WayABC went public last year with its initial public offering price at $29, but its first day trading price was $25. Did investors like its IPO, and why did the firm attempt to price its initial stocks?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT