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 s expected to grow at a constant 4% rate ers WACC is 10%. Year FCF (S 0 NA -9 32 39 millions) a. 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. 676 million b. What is the firm's value today? Round your answer to two decimal places. million c. Suppose Dozier has $141 million of debt and 9 million shares of stock outstanding. What is your estimate of the price per share? Round your answer to two decimal places.

Explanation / Answer

a)

Horizontal value = 39 *(1 +4%)/10%-4%

= 39*1.04/0.06

= 676 million

b)

value of firm today

= -9/1.1 + 32/1.1^2 + 39/1.1^3 + 676/1.1^3

= 555.46 million

c)

value of equity = 555.46 - 141 = 414.46 million

price per share = 414.46/9 = 46.05

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