Free cash flow valuation Nassif Industries is considering going public but it un

Question

Free cash flow valuation Nassif Industries is considering going public but it unsure of a fair offering price for the company. Before hiring an investement banker to assist in making the public offering, managers Nassif have decided to make their own estimate of the firm's common stock value. The firm's CFO hat gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average coir of capital it 11 percent, and it hat US$1,500,00 of debt at market value and US$4C00, 000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 years, 2013 through 2017, are given below. Beyond 2017 to infinity, the firm expects its free cash flow to grow by 3 percent annually. Estimate the value of Nassif Industries' entire company by using the fret cash flow valuation model. Use your finding in part a. along with the data provided above, to find Nassif Industries' common stock value. If the firm plans to issue 200,000 shares of common stock, what it its estimated value per share?

Explanation / Answer

(a) Calculation of Estimared value of Nassif industries

FCF for 2018 = 390000 x 103% = 401700

Value on 2017 = 401700/(11%-3%)

= 5021250

Estimated value = 200000x0.901 + 250000x0.812 + 310000x0.731 + 350000x0.659 + 390000x0.593 + 5021250x0.593

= 4049331

(b) Cpommon stock value = 4049331 - 1500000 - 400000

= 2149331

(c) Price per share = 2149331/200000 = 10.75

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.