Question

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 14%.

Year	0		1		2		3
	.......	.......	.......	.......	.......	.......	.......	.......
FCF ($ millions)	.......	.......	.......	.......	.......	.......	.......	......
	NA		- $15		$16		$42

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 $77 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.
   $  

Answer 1

	WACC=	14.00%
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	1.14	-13.1579
2	-15	0.00%	16		16	1.2996	12.31148
3	16	0.00%	42	756	798	1.481544	538.62727
	Long term growth rate (given)=	8.00%			b. Value of Enterprise =	Sum of discounted value =	537.78

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

538.62727 = Equity value+77

Equity value = 461.63

share price = equity value/number of shares

share price = 461.63/6

share price = 76.94