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 = 14%.

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.

$  

Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40

Explanation / Answer

1. Dozier's terminal, or horizon as per growth model =Free cash flow in previous year(1+growth rate)/(WACC-growth rate)

=40(1+0.08)/(14%-8%) =$ 720 millions

2.current value of operations for Dozier = present value of cash flows during the period +terminal, or horizon value

3.intrinsic price per share refers to net assets per share

Net assets per share =(Assets -liabilities)/No of common stock

=marketable securities,+in debt

=110/10

=11 per share

Note: It is assuming that 100 milloins in debt treated as investement like investment in securities

in millions Year Casf flows PVF@14% PV 1 -20 0.8772 -17.54 2 30 0.7695 23.084 3 40 0.675 26.999 32.539 Add:Terminal value 720 current value of operations 753

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