Question

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 7% rate. Dozier's WACC is 12%. Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... FCF ($ millions) ....... ....... ....... ....... ....... ....... ....... ...... NA - 13 22 53

What is Dozier'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

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. $ million Suppose Dozier has $160 million of debt and 26 million shares of stock outstanding.

What is your estimate of the 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

	Required rate=	12.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	-13		-13	1.12	-11.6071
2	-13	0.00%	22		22	1.2544	17.53827
3	22	0.00%	53	1134.2	1187.2	1.404928	845.02551
	Long term growth rate (given)=	7.00%			Value of Stock =	Sum of discounted value =	850.96
Where
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

Enterprise value = Equity value+ MV of debt

850.96 = Equity value+160

Equity value = 690.96

share price = equity value/number of shares

share price = 690.96/26

share price = 26.58