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 = 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 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. $

Answer 1

	WACC=	16.00%
Year	Previous year FCF	FCF growth rate	FCF current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	-20		-20	1.16	-17.2414
2	-20	0.00%	30		30	1.3456	22.29489
3	30	0.00%	40	622.86	662.857	1.560896	424.66442
	Long term growth rate (given)=	9.00%			Value of operations=	Sum of discounted value =	429.72

Where
Where
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

Enterprise value = Equity value+ MV of debt

- Short term investments

429.72 = Equity value+100-10

Equity value = 339.72

share price = equity value/number of shares

share price = 339.72/10

share price = 33.97