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 5% rate. Dozier's WACC is 11%. Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... FCF ($ millions) ....... ....... ....... ....... ....... ....... ....... ...... NA - 19 23 51 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. $ million What is the firm's value today? 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. $ million Suppose Dozier has $72 million of debt and 40 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. $

Explanation / Answer

1 Calculation of Horizon Value Horizon Value = Annual Cash Flow Beyond Time t(1+ growth rate) / (Required Return Growth Rate)                           =51(1+5%) / (11%-5%)                           =$892.5 Million 2 Value of Firm Year Cash Flows Present value factor@ Present Value 11.00% 0 0 1.000 0.00 1 19 0.901 17.12 2 23 0.812 18.67 3 51 0.731 37.29 3 892.5 0.731 652.59 Value of firm 725.66 3 Price Per Share = Value of firm / No of shares outstanding                             =725.66 / 40                             =18.14

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