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 WACC is 11%.

Suppose Dozier has $179 million of debt and 9 million shares of stock outstanding. What is your estimate of the price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.

Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... FCF ($ millions) ....... ....... ....... ....... ....... ....... ....... ...... NA - 24 27 41

Explanation / Answer

Estimated enterprise value = present value of FCF = FCF1/(1+WACC)^1+ FCF2/(1+WACC)^2 +FCF3/(1+WACC)^3 + (FCF*(1+g) / (WACC-g))/(1+WACC)^3

= -24/(1.11)^1 + 27/(1.11)^2+41/(1.11)^3+((41*1.08)/(0.11-0.08))/(1.11)^3

= $1109.51 MILLION

Firm value of equity = 1109.51 - 179 = 930.51 million

price per share = 930.51 / 9 = $103.39 per share

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