Question

Free Cash Flow Valuation

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

1. What is Dozier's terminal, or 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
   
2. What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places.
   
   $   million
   
3. 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? Round your answer to the nearest cent. Round intermediate calculations to two decimal places.

Answer 1

Based on the given data, pls find below workings for the same:

Answers highlighed in yellow above:

What is Dozier's terminal, or horizon, value? Answer: $ 1090 Mn (Present Value of the Horizon Value is $ 755.42 Mn)

What is the current value of operations for Dozier? Answer: $ 788.94 Mn (Enterprise Value);

ppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Answer : $ 69.89 per share

(in $ Mn) Year 0 Year 1 -20.00 FCF Growth% Year 2 30.00 250% Year 3 40.00 33% Terminal 43.60 9.0% 43.60 1.0000 Free Cash Flows Discounting Factor Discounted Cash Flow Cumulative Discounted Cash Flow -20.00 0.8850 -17.70 -17.70 30.00 0.7831 23.49 5.80 40.00 0.6931 27.72 33.52 CALCULATION OF ENTERPRISE VALUE % 4% Particulars PV of Year 1 to Year 3 Free Cash Fows WACC Terminal Growth Terminal Value Present Value of terminal value ENTERPRISE VALUE 33.52 13.00% 9.0% 1,090 755.42 788.94 96% 100% Less: Debt Add: Cash / Marketable Securities 100.00 10.00 Net Equity Value No.of Shares Outstanding (Qty in Million) Value Per Share (in $) 698.94 10.0 69.89