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 7% rate. Dantzler's WACC is 13%.
Year | 0 | 1 | 2 | 3 | ||||
....... | ....... | ....... | ....... | ....... | ....... | ....... | ....... | |
....... | ....... | ....... | ....... | ....... | ....... | ....... | ...... | |
FCF ($ millions) | - $12 | $30 | $50 |
FCF Constant Growth rate after 3 year(g) = 7%
WACC = 13%
a). Calculating Horizon Value:-
Horizon Value = $891.67 millions
b). Calcylating Firm's Market Value:-
Market Value = -$10.619 + $23.494 + $34.653 + $617.972
Total market value of Firm= $665.50 millions
c). Firm market value = Value of equity + Value of Debt
$665.50 milliom = Value of equity + $142.10 million
Value of equity = $523.40 million
Current Price per share = Value of equity/No of share outstanding
Current Price per share = $523.40 million/18 million
Current Price per share = $29.08 per share
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