Question

# Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows...

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 9% 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.)

What is the current value of operations for Dozier? Do not round intermediate calculations. Round your answer to two decimal places. \$ million 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? Do not round intermediate calculations. Round your answer to the nearest cent. \$

Dozier's Horizon Value

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

= \$40(1+0.09) / (0.13 – 0.09)

= \$43.60 / 0.04

= \$1,090

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 + \$20/(1+0.13)2 + \$40/(1+0.13)3 + \$1,090/(1+r)3

= -\$17.70 + \$23.49 + \$27.72 + \$755.42

= \$788.94

Intrinsic price per share

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

= [\$788.94 + 10 – 100] / 10 Million shares

= \$698.84 / 10 Million shares

= \$69.89 per share

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