Question

Corporate valuation Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free...

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
  1. What is Dantzler's horizon, or continuing, 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. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55.
    $   million
  2. What is the firm's value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round your intermediate calculations.
    $   million
  3. Suppose Dantzler has $61 million of debt and 6 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.

Homework Answers

Answer #1
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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