Question

Free Cash Flow Valuation

Dozier 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. Dozier's weighted average cost of capital is WACC = 18%.

	Year
	1	2	3
Free cash flow ($ millions)	-$20	$30	$40

1. What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.

   $    million

2. What is the current value of operations for Dozier? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.

   $    million

3. Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearest cent.

   $   

Answer 1

x r +C209*1.05 c210 A fir C B 206 207 D E F PVIF @18% Present value 0.847 $ Millions 0.718 $ 21.55 Millions 0.609 $ 24.35 Millions FCF 1 FCF 2 FCF3 FCF 4 Horizon value 208 209 30.00 40.00 $ 42.00 210 211 $ 0.609 $ 196.63 Millions 212 323.08 423/(13%-5%) 213 214 Firm's value today Less: Debt & Preferred 242.53 Millions 100.00 Millions $ 215 216 Add: Cash Add: Marketable securities Millions Millions 217 218 219 Common stocks value - Number of shares 142.53 Millions 10 Millions 220 221 Intrinsic value per share 14.25 per share 222 223 224 Horizon value $ 323.08 Value of operations $ 242.53 Intrinsic value per share $ 14.25 225

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