Question

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 15%.

Year	0		1		2		3
	.......	.......	.......	.......	.......	.......	.......	.......
	.......	.......	.......	.......	.......	.......	.......	......
FCF ($ millions)			- $9		$18		$43

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 $180.00 million of debt and 12 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

(a)-Dantzler's horizon, or continuing, value

Free cash flow in year 3 (FCF3) = $43 Million

Growth Rate (g) = 5.00% per year

Weighted Average Cost of capital (WACC) = 15.00%

Therefore, the Horizon Value = FCF3(1 + g) / (WACC – g)

= $43 Million(1 + 0.05) / (0.10 – 0.05)

= $45.15 Million / 0.10

= $451.50 Million

(b)-Firm’s Value Today

Firms Value Today is the Present Value of the Free Cash flows and the Terminal Value

Year	Cash flow ($ in Million)	Present Value Factor (PVF) at 15.00%	Present Value of cash flows ($ in Million) [Cash flows x PVF]
u1	(9.00)	0.86957	(7.83)
2	18.00	0.75614	13.61
3	43.00	0.65752	28.27
3	451.50	0.65752	296.87
TOTAL			330.93

“Hence, the firm's value today will be $330.93 Million”

NOTE

The Formula for calculating the Present Value Factor is [1/(1 + r)ⁿ], Where “r” is the Discount/Interest Rate and “n” is the number of years.

(c)-Current Price per share

Current Price per share = [Firms Value – Debt Outstanding] / Number of stocks outstanding

= [$330.93 Million - $180 Million] / 12 Million Shares outstanding

= $150.93 Million / 12 Million Shares outstanding

= $12.58 per share