#616 Free Cash Flow Valuation Dozier Corporation is a fast

Free Cash Flow Valuation Dozier Corporation is a fast  - Business Statistics

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Free Chegg Question

Free Cash Flow Valuation

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 8% rate. Dozier's weighted average cost of capital is WACC = 13%.

1. What is Dozier's terminal, or horizon, 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.
   
   $   million
   
   
2. What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places.
   
   $   million
   
   
3. 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? Round your answer to the nearest cent. Round intermediate calculations to two decimal places.

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Free Chegg Answer 1

Vo = FCF1/(1+WACC)^1 + FCF2/(1+WACC)^2 + FCF3/(1+WACC)^3

Vo = -$20/(1+.13)^1 + $30/(1+.13)^2 + $40/(1+.13)^3

Vo = -$17.70 + $23.49 + $27.72 = $33.52

value of operation when FCF is expected to grow at 8% rate

Vo = FCF3(1+g)/WACC - g

Vo = $40(1+ 0.08)/0.13 - 0.08

Vo = $864

Current value of operation = -$20/(1+.13)^1 + $30/(1+.13)^2 + $40/(1+.13)^3 + $713.33/(1+.13)^3

Current value of operation = $527.89

Intrinsic value of firm = current value of operation + marketable securities - debt

Intrinsic value of firm = $527.89 + $10 -$100 = $417.89

Intrinsic price per share = $437.89 million/10 million = $43.79

Free Chegg Answer 2

The following are the data inputs in spreadsheet:

The following are the obtained results in spreadsheet: