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 5% rate. Dantzler's WACC is 10%.
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a. Horizon value at Year3=FCF4/(WACC-growth rate)
FCF4=FCF3*(1+growth rate)=$47*(1+5%)=$49.35 million
Horizon value=$49.35/(10%-5%)=$987.0 million
b. Value of the Firm=(FCF1/(1+10%))+(FCF2/(1+10%)^2)+((FCF3+Horizon value at year3/(1+10%)^3)
=(-25/1.10)+(10/1.10^2)+(1034/1.10^3)
=-22.73+8.26+776.86
=$762.40 million
c. Value of the equity=value of the firm-value of debt=$762.40-$32.7=$729.70 million
Value of share=Value of the equity/Shares outstanding=729.70/30=$24.32
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows...
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