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5. Wilson, Inc. is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist
5. Wilson, Inc. 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 Goff 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 18%, and it has $1,000,000 of debt at market value and $750,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5-year, 2016 through 2020, are given below. Beyond 2020 to infinity, the firm expects its free cash flow to grow by 5% annually. Year FCF 2016 $245,000 2017 275,000 2018 335,500 2019 395,200 2020 515,000 2020 4,159,615 A. Estimate the value of Goff 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 Goff Industries' common stock value. C. If the firm plans to issue 150,000 shares of common stock, what is its estimated value per share? WACC 0.18 Debt 1,000,000 Preffered Stock 750,000 GR 0.05
| 5. Wilson, Inc. 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 Goff 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 18%, and it has $1,000,000 of debt at market value and $750,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5-year, 2016 through 2020, are given below. Beyond 2020 to infinity, the firm expects its free cash flow to grow by 5% annually. | |||||||||
| Year | FCF | ||||||||
| 2016 | $245,000 | ||||||||
| 2017 | 275,000 | ||||||||
| 2018 | 335,500 | ||||||||
| 2019 | 395,200 | ||||||||
| 2020 | 515,000 | ||||||||
| 2020 | 4,159,615 | ||||||||
| A. Estimate the value of Goff 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 Goff Industries' common stock value. | |||||||||
| C. If the firm plans to issue 150,000 shares of common stock, what is its estimated value per share? | |||||||||
| WACC | 0.18 | ||||||||
| Debt | 1,000,000 | ||||||||
| Preffered Stock | 750,000 | ||||||||
| GR | 0.05 |
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Principles Of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter
13th Edition
9780132738729, 136119468, 132738724, 978-0136119463
