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 4% rate. Dantzler's WACC is 12%.
Year | 0 | 1 | 2 | 3 | ||||
....... | ....... | ....... | ....... | ....... | ....... | ....... | ....... | |
....... | ....... | ....... | ....... | ....... | ....... | ....... | ...... | |
FCF ($ millions) | - $14 | $24 | $43 |
Horizon value = Free cash flow in year 4/(WACC – growth Rate)
= 43(1.04)/(12%-4%)
= $559 million
b.Value of firm is equal to present value of free cash flows
= -14/(1.12) + 24/(1.12)^2 + 43/(1.12)^3 + 559/(1.12)^3
= $435.12 million
c.Price per share = (435.12 million – 49.70 million)/12 million
= $32.12 per share
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows...
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