O Problem 9-15 Corporate valuation Dantztler Corporation is a fast-growing suppl
ID: 2786711 • Letter: O
Question
O Problem 9-15 Corporate valuation Dantztler 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, Dantzler's WACC is 10%. Year FCF (S millions) a. What is Dantzler'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 NA $13 $33 $49 places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.5s million b. 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. Do not round your intermediate calculations. million C. Suppose Dantzler has $88 million of debt and 20 million shares of stock outstanding. What is your estimate of the current 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. Check My Work (a remaining)Explanation / Answer
Note: All calculations below are in $ million
a.) Horizon Value = FCFt+1/(r-g) = (49 x 1.08)/(0.10-0.08) = 52.92/0.02 = $2,646
b.) Value of Firm Today = -13/1.10 + 33/1.102 + 49/1.103 + 2646/1.103
= -11.8181 + 27.2727 + 36.8144 + 1987.9789
= 2,040.25
c.) Present Value of Debt =$88
Present Value of Firm =$2,040.25
Present Value of Equity = $2,040.25 - $88 =$1,952.25
Shares Outstanding = 20 million
Value of each share = $1,952.25/20 =$97.61
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