Free cash flow valuation Nabor Industries is considering going public but is uns

Question

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 fim'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 $2,310,000 of debt at market value and $460,000 of preferred stock at its assumed market value. The estr ated 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 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? a. The value of Nabor Industries. entire company is SL a. The value of Nabor Industries' entire company is s(Round to the nearest dollar) (Round to the nearest dollar.) (Round to the nearest dollar) c. If the firm plans to issue 200,000 shares of common stock, the estimated value per share is s(Round to the nearest cent)

Explanation / Answer

$203550

CASH FLOW OF YEAR 2020

= CASH FLOW OF YEAR 2021 / (Ke - GROWTH)

= $430000 * 106% / (13% - 6%)

= $455800 / 7%

= $6511429

A./

VALUE OF NABOR INDUSTRIES ENTIRE COMPANY $4182288

B./

VALUE OF NABOR INDUSTRIES COMMON STOCK

= TOTAL VALUE - MARKET VALUE OF DEBT - MARKET VALUE OF PREFERED STOCK

= $4182288 - $2310000 - $460000

= $1412288

C./

EASTIMETED VALUE OF COMMON STOCK PER SHARE

= $1412288 / 200000

= $7.06

YEAR FREE CASH FLOW DISCOUNTING FACTOR 13% BDISCOUNTED CASH FLOW 2016 $230000 0.8850

$203550

2017 $270000 0.7831 $211437 2018 $320000 0.6931 $221792 2019 $350000 0.6133 $214655 2020 $6511429 0.5428 $3534404 NPV $4182288

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