Dozier Corporation is a fast-growing supplier of office products. Analysts proje
ID: 2618379 • Letter: D
Question
Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 9% rate. Dozier's weighted average cost of capital is WACC = 17%.
What is Dozier's terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places.
$____ million
What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places.
$___ million
Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Round your answer to the nearest cent. Round intermediate calculations to two decimal places.
$ _____
Please show me your steps so I can understand how you got there. Thank you!
Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40Explanation / Answer
Ans 1) terminal value = FCFF in 3rd year * (1 + growth rate)/ ( wacc - growth rate)
= 40 * 1.09 /(.17 - .09)
= $545 Million
Ans 2) Current value of operation = summation of present value of all cash flow and terminal value
= -20/(1+.17) + 30/(1+.17)^2 + 40/(1+.17)^3 + 545/(1+.17)^3
= $370.08 Million
Ans 3) Price per share = (Current value of share - value of marketable securities - value of debt)/number of share
= $(370.08 - 10 - 100)/10
= $26.01
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