Brees Industries is considering going public but is unsure of a fair offering price for the...

50.1K

Verified Solution

Question

Finance

Brees Industries is considering going public but is unsure of afair offering price for the company. Before hiring an investmentbanker to assist in making the public offering, managers at Breeshave decided to make their own estimate of the firm’s common stockvalue. The firm’s CFO has gathered data for performing thevaluating using the free cash flow valuation model. The firm’sweighted average cost of capital is 10%, and it has $800,000 ofdebt at market value and $600,000 of preferred stock at its assumedmarket value. The estimated free cash flows over the next 4 year,2020 through 2023, are given below. Beyond 2017 to infinity, thefirm expects its free cash flow to grow by 3% annually.
2020 RM 100000
2021 RM 200000
2022 RM 310000
2023 RM 450000
A) estimate the value of the entire company using the free cashflow valuation model?
b) using finding in part a, find the common stock value?
c) if the firm plan to issue 100,000 shares of common stock,what is the estimated value per share?

Answer & Explanation Solved by verified expert

4.0 Ratings (502 Votes)

a First we calculate terminal value of the firm after 2023 terminal value cash flow 20231growth rateweighted average cost of capitalWACC growth rate terminal value See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member