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 6% rate. Dozier's WACC is 12%.

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a. What is Dozier's terminal, or horizon, value? Round your answer to two decimal places.
(Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.)

b. What is the firm's value today? Round your answer to two decimal places.

c. Suppose Dozier has $140 million of debt and 10 million shares of stock outstanding. What is your estimate of the price per share? Round your answer to two decimal places.

Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... FCF ($ millions) ....... ....... ....... ....... ....... ....... ....... ......

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- 24 21 59

Explanation / Answer

1. Terminal value use Perpetuity= (3rd Year FCF * (1+g))/ WACC – g

                                                = (59 (1.06))/0.12-0.06

                                               = 62.54/0.06 = 1042.33 MILLION

2. Present Value of the FCF = -24/1.12 + 21/(1.12)^2 + 59/(1.12)^3

                                             = $ 37.31 millions

Present Value Terminal Value = 1042.33/(1.12)^3 = 741.91

Firms Value = 37.31 +741.91 = $ 779.22

3. Price per share = 779.22 million / 10 million = $ 77.92 per Share

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