Dozier Corporation is a fast-growing supplier of office products. Analysts proje
ID: 2810128 • Letter: D
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 7% rate. Dozier's weighted average cost of capital is WACC-1896. Year 2 $30 Free cash flow ($ millions) $20 $40 a. What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. million b. What is the current value of operations for Dozier? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. million c. 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? Do not round intermediate calculations. Round your answer to the nearest cent.Explanation / Answer
a. horizon value = 40*1.07/0.11 = 389.09
b.
Current value = 265.75
c. intrinsic value = (265.75 - 10 - 100)/10 = 15.58
Discount rate 18.0000% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow - 0 - - (20.000) 1 (16.95) (16.95) 30.000 2 21.55 4.596 40.000 3 24.35 28.94 389.091 3 236.81 265.75Related Questions
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