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...

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, 2013 through 2017, are given
below. Beyond 2017 to infinity, the firm expects its free cash flow to grow by 3% annually.

2014 250,000
2015 310,000
2016 350,000
2017 390,000
(i) Estimate the value of Nabor Industries’ entire company by using the free cash flow