Question

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 11%. FCF (5 millions) - $17 $25 $39 a. 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.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places. million b. What is the firm's market value today? Assume that Dantzler has zero non-operating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places million c. Suppose Dantzler has $55.90 million of debt and 30 million shares of stock outstanding. That is your estimate of the current price per share? Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Year Cash flows pv @ 11% -$17.00 0.90090 $25.00 0.81162 $39.00 0.73119 (39*1.08)/(0.11-0.08) 0.73119 Present value of future cash flows ( value of the firm ] Present value $15.32 $20.29 $28.52 $1,026.59 $1,060.08 value of firm at year 3 | million Horizon value = $1,404.00 million Value today = $1,060.08 million $1,060 $0 value of the firm = add: marketable secu. less: debt = value of equity = $55.9 $1,004 share price = $33.47 ( 1004 - 30 ]