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 7% rate. Dantzler's WACC is 11%. Year 0 1 2 FCF ($ millions) - $11 $17 $60 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 $176.30 million of debt and 15 million shares of stock outstanding. What 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

Solution a
Current Cash flow	$        60.00
Rate of return	11.00%
Growth Rate	7.00%
Horizon value	=Current Cash flow*(1+Growth rate)/(Rate of return-Growth Rate)
Horizon value	'60*(1+7%)/(11%-7%)
Horizon value	$   1,605.00	million
Solution B
Year	Cash flow	Cash flow	PV factor	Present Values
1		$     (11.000)	0.9009	$       (9.91)
2		$      17.000	0.8116	$      13.80
3		$      60.000	0.7312	$      43.87
3		$ 1,605.000	0.7312	$ 1,173.56
			Fiar value today	$ 1,221.32
Solution C
Fair value today	$   1,221.32
Debt	$    (176.30)
Value attributable for shares	$   1,045.02
No of shares	15
Share price per share	1045.02/15
Share price per share	$        69.67	per share