Dozier Corporation is a fast-growing supplier of office products. Analysts proje

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 8% rate. Dozier's weighted average cost of capital is WACC 12%. Year 1 2 3 Free cash flow ($ millions) - $20 $30 $40 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.). Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million What is the current value of operations for Dozier? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million Suppose Dozier has $8 million in marketable securities, $120 million in debt, and 10 million shares of stock. What is the price per share? Round your answer to the nearest cent. $

Explanation / Answer

Value of operation = Vo = PV of expected future free cash flow Vo = FCF1/(1+WACC)^1 + FCF2/(1+WACC)^2 + FCF3/(1+WACC)^3 Vo = -$20/(1+.13)^1 + $30/(1+.13)^2 + $40/(1+.13)^3 Vo = -$17.70 + $23.49 + $27.72 = $33.52 value of operation when FCF is expected to grow at 7% rate Vo = FCF3(1+g)/WACC - g Vo = $40(1+ 0.07)/0.13 - 0.07 Vo = $713.33 Current value of operation = -$20/(1+.13)^1 + $30/(1+.13)^2 + $40/(1+.13)^3 + $713.33/(1+.13)^3 Current value of operation = $527.89 Intrinsic value of firm = current value of operation + marketable securities - debt Intrinsic value of firm = $527.89 + $10 -$100 = $417.89 Intrinsic price per share = $437.89 million/10 million = $43.79

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