Question

8–18 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 7% rate. Dozier’s weighted average cost of capital is WACC 5 13%. Year 1 2 3 Free cash flow ($ millions) 2$20 $30 $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.) b. What is the current value of operations for Dozier? 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?

Answer #1

**(a)-Dozier's Horizon
Value (HV)**

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

= $40(1 + 0.07) / (0.09) / (0.13 – 0.07)

= $42.80 / 0.06

= $713.33

**(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} + $30/(1 + 0.13)^{2} +
$40/(1 + 0.13)^{3} + $713.33/(1 + 0.13)^{3}

= [-$20 / 1.13] + [$30 / 1.27690] + [$40 / 1.44290] + [$713.33 / 1.44290]

= -$17.70 + $23.49 + $27.72 + $494.38

= $527.89 Million

**(c)-Intrinsic price
per share**

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

= [$527.89 Million + $10 Million - $100 Million] / 10 Million shares

= $437.89 Million / 10 Million shares

= $43.79 per share

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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%.
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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...

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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 5% rate. Dozier's weighted average cost of capital is WACC
= 15%.
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...

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weighted average cost of capital is WACC = 13%.
Year
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2
3
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What is Dozier's
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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
= 16%.
Year
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2
3
Free cash flow ($ millions)
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What is Dozier's horizon value? (Hint: Find the value
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during the next 3 years, after which FCF is expected to grow at a
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2
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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 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.)
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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
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Dozier's horizon value? (Hint: Find the value of all free cash
flows beyond Year 3 discounted back to Year 3.)
Round your...

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