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%.

What is Dozier's horizon, or continuing, 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. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55.

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

Explanation / Answer

Answer: Calculation of the Dozier's horizon, or continuing, value is:

Terminal value use Perpetuity formula: Next FCF.. (Yr 3 FCF * 1+g)/ WACC - g

=$41(1.08)/0.11-0.08=$1476 millions

Answer: Firm value today:

Particulars Year P.V.F (11%) Amount ($) in millions PV ($) in millions FCF 1 0.9009 -24 -21.6216 2 0.811622 27 21.913794 3 0.73119 41 29.97879 Terminal value 3 0.73119 1476 1079.23644 1109.507424

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.