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
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 12 %and it has $2,760,000 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 years, 2016 through 2020, are given in the table,
Year (t) | Free cash flow (FCF) |
|
2016 | $250,000 | |
2017 | $300,000 | |
2018 | $350,000 | |
2019 | $420,000 | |
2020 | $500,000 |
.
Beyond 2020 to infinity, the firm expects its free cash flow to grow by 5 % annually.
a.The value of Nabor Industries' entire company is ______?
b.The value of Nabor Industries' common stock is _______?
c.If the firm plans to issue 200,000 shares of common stock, the estimated value per share is _____?
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