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 13%.
Year | 0 | 1 | 2 | 3 | ||||
....... | ....... | ....... | ....... | ....... | ....... | ....... | ....... | |
....... | ....... | ....... | ....... | ....... | ....... | ....... | ...... | |
FCF ($ millions) | - $20 | $22 | $39 |
FCF Constant Growth rate after 3 year(g) = 8%
WACC = 13%
a). Calculating Horizon Value:-
= $842.40 millions
b). Calcylating Firm's Market Value:-
Market Value = -$17.70 + $17.23 + $27.03 + $583.83
Total market value of Firm= $610.38 millions
c). Firm market value = Value of equity + Value of Debt
$610.38 milliom = Value of equity + $118 million
Value of equity = $492.38 million
Current Price per share = Value of equity/No of share outstanding
Current Price per share = $492.38 million/27 million
= $18.24 per share
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