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 11%, and it has $3,500,000 of debt at market value and $700,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 2020 through 2024, are given in the table, E. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6% 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? Data Table a. The value of Nabor Industries' entire company is $ (Round to the nearest dollar.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year (t) Free cash flow (FCF) $240,000 $290,000 $320,000 $400,000 $460,000 2020 2021 2022 2023 2024 Print Done
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 11%, and it has $3,500,000 of debt at market value and $700,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 2020 through 2024, are given in the table, E. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6% 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? Data Table a. The value of Nabor Industries' entire company is $ (Round to the nearest dollar.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year (t) Free cash flow (FCF) $240,000 $290,000 $320,000 $400,000 $460,000 2020 2021 2022 2023 2024 Print Done
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 21P
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Concept explainers
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text: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 11%, and it has $3,500,000 of debt at market value and $700,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 2020
through 2024, are given in the table, E. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6% 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?
Data Table
a. The value of Nabor Industries' entire company is $
(Round to the nearest dollar.)
(Click on the icon located on the top-right corner of the data table below in order to
copy its contents into a spreadsheet.)
Year (t)
Free cash flow (FCF)
$240,000
$290,000
$320,000
$400,000
$460,000
2020
2021
2022
2023
2024
Print
Done
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