Corporate valuation
Dantzler 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 8% rate. Dantzler's WACC is 12%.
Year | 0 | 1 | 2 | 3 | ||||
....... | ....... | ....... | ....... | ....... | ....... | ....... | ....... | |
FCF ($ millions) | ....... | ....... | ....... | ....... | ....... | ....... | ....... | ...... |
NA | - $15 | $21 | $56 |
WACC= | 12.00% | ||||||
Year | Previous year FCF | FCF growth rate | FCF current year | a. Horizon value | Total Value | Discount factor | Discounted value |
1 | 0 | 0.00% | -15 | -15 | 1.12 | -13.3929 | |
2 | -15 | 0.00% | 21 | 21 | 1.2544 | 16.74107 | |
3 | 21 | 0.00% | 56 | 1512 | 1568 | 1.404928 | 1116.07143 |
Long term growth rate (given)= | 8.00% | b. Value of Enterprise = | Sum of discounted value = | 1119.42 |
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 |
c
Enterprise value = Equity value+ MV of debt |
1119.42 = Equity value+61 |
Equity value = 1058.42 |
share price = equity value/number of shares |
share price = 1058.42/6 |
share price = 176.4 |
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