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 16%. 0 1 2 3 Year FCF ($ millions) - $12 $12 $57 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Answer 1

Horizon value = Free cash flow in year 4/(WACC – growth Rate)

= 57(1.08)/(16%-8%)

= $769.5 million

b.Value of firm is equal to present value of free cash flows

= -12/(1.16) + 12/(1.16)^2 + 57/(1.16)^3 + 769.5/(1.16)^3

= $528.08 million

c.Price per share = (528.08 million – 94 million)/18 million

= $24.12 per share