Question

9.15

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 11%.

Year	0		1		2		3
	.......	.......	.......	.......	.......	.......	.......	.......
	.......	.......	.......	.......	.......	.......	.......	......
FCF ($ millions)			- $13		$28		$41

1. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $ _____ million
   
2. What is the firm's market value today? Assume that Dantzler has zero non-operating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $ ____ million
   
3. Suppose Dantzler has $148.90 million of debt and 6 million shares of stock outstanding. What is your estimate of the current price per share? Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.
   $ ____

Answer 1

	WACC=	11.00%
Year	Previous year FCF	FCF growth rate	FCF current year	a. Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	-13		-13	1.11	-11.7117
2	-13	0.00%	28		28	1.2321	22.72543
3	28	0.00%	41	a. 717.5	758.5	1.367631	554.60866
	Long term growth rate (given)=	5.00%			b. Value of Enterprise =	Sum of discounted value =	565.62
Where
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

c

Enterprise value = Equity value+ MV of debt

565.62 = Equity value+148.9

Equity value = 416.72

share price = equity value/number of shares

share price = 416.72/6

share price = 69.45