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 9% rate. Dozier's weighted average cost of capital is WACC = 13%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40 What is Dozier's horizon 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. $ million

What is the current value of operations for Dozier? Do not round intermediate calculations. Round your answer to two decimal places. $ million 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

Dozier's Horizon Value

Horizon Value = CF in Year 3(1+g) / (Ke – g)

= $40(1+0.09) / (0.13 – 0.09)

= $43.60 / 0.04

= $1,090

Current value of operations for Dozier

Current value of operations for Dozier = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 + HV/(1+r)3

= -$20/(1+0.13)1 + $20/(1+0.13)2 + $40/(1+0.13)3 + $1,090/(1+r)3

= -$17.70 + $23.49 + $27.72 + $755.42

= $788.94

Intrinsic price per share

Intrinsic price per share = [Value of operation + Marketable securities – Debt] / Number of stocks outstanding

= [$788.94 + 10 – 100] / 10 Million shares

= $698.84 / 10 Million shares

= $69.89 per share

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