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Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows...

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 11%. Years: 0 1 2 3 FCF Year (1) -19 FCF Year (2) 25 FCF Year (3) 47 a)What is Dantzler’s horizon, or continuing, value? b)What is the firm’s value today? c)Suppose Dantzler has $152.10 million of debt and 13 million shares of stock outstanding. What is your estimate of the current price per share?

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Answer #1

Horizon Value = Cash flow in year 4/(Required return – growth rate)

= 47(1.04)/(11%-4%)

= $698.29 million

Value today is equal to the present value of all future free cash flows

= -19/1.11 + 25/(1.11)2 + 47/(1.11)3 + 698.29/(1.11)3

= $548.12 million

c.Value of firm = $548.12 million

Less: Value of debt = $152.10 million

Value of stock = $396.02 million

Number of shares = 13 million

Current price per share = 396.02 million/13 million

= $30.46

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