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 6% 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.

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

- 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.

Answer #1

**a.Dozier's Horizon Value**

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

= $40(1 + 0.06) / (0.13 – 0.06)

= $42.40 / 0.07

= $605.71

**b.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} + $605.71/(1+r)^{3}

= -$17.70 + $23.49 + $27.72 + $419.79

= $453.31 Million

**c.Intrinsic price per share**

Intrinsic price per share = Value of Common Shares / Number of stocks outstanding

= [Value of operation + Marketable securities – Debt] / Number of stocks outstanding

= [$453.31 + 10 – 100] / 10 Million shares

= $363.31 / 10 Million shares

= $36.33 per share

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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
= 16%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40 What is
Dozier's horizon value? (Hint: Find the value of all free cash
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products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 10% rate. Dozier's weighted average cost of capital is
WACC = 18%.
Year
1
2
3
Free cash flow ($ 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.)
Enter your...

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 10% 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.) Enter your...

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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
= 15%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40
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