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 $1,500,000 of debt
at market value and $400,000 of preferred stock at its assumed market value. The estimated
free cash flows over the next 5 years, 2016 through 2020, are given below.
Beyond 2020 to infinity, the firm expects its free cash flow to grow by 3% annually.
Year (t) Free cash flow (FCFt)
flow valuation model.
common stock value.
value per share?
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