Question

Excel Online Structured Activity: Corporate Valuation

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 7% rate. Dantzler's WACC is 16%.

Year 1          2          3

FCF ($ millions)    - $17      $32      $60

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Corporate valuation
Dollars/shares in millions
FCF1	($17.00)
FCF2	$32.00
FCF3	$60.00
Constant growth rate, gn	7.00%
WACC	16.00%
Market value of debt	$187.00
Common shares outstanding	31
		0	1	2	3	4
FCFs			($17.00)	$32.00	$60.00
Horizon value
Total FCFs
PV of FCFs to investors
Firm value today
Market value of equity, MVEquity
Price per share, P0

A. 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.) Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55.

$ ____ million

B. What is the firm's value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round your intermediate calculations.

$ ____ million

C. Suppose Dantzler has $187 million of debt and 31 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.

$ ____

Answer 1

(A)

Continuing Value using Gordan's Growth Model

FCF3*(1+Growth rate)/(WACC - Growth Rate)

Given FCF3 = 60 Million $

Growth Rate = 7%

WACC = 16%

Continuing Value = 60*(1+0.07)/(0.16-0.07) = 64.2/0.09 = 713.33 Million $

Present Value of Continuing Value since the value we found is in third year, so we have to bring it back three years back

= Future Value/(1+WACC)^3

= 713.33/(1+0.16)^3

= 457.00 Million $

(B)

Firm Value = Present Values of Free Cash FLows before constant growth + Present Value of Contiuing Value

Present Value of Free Cash Flows before constant growth

= FCF1/(1+WACC)^1 + FCF2/(1+WACC)^2 + FCF3/(1+WACC)^3

Given FCF1 = -17$, FCF2 = 32$, FCF3 = 60$, WACC = 16%

= (-17)/(1+0.16)^1 + 32/(1+0.16)^2 + 60/(1+0.16)^3

= -14.6552 + 23.7812 + 38.4395

= 47.5655 Million $

Firm Value = 47.5565 + 457.0000 = 504.57 Million $

(C)

Given Value of Debt = 187 Million $

Value of Equity = Value of Firm - Value of Debt = 504.57 - 187 = 317.57 Million $

Outstanding Number of shares = 31 Million

Current Value of shares = Value of Equity / Outstanding Number of shares = 317.57 / 31 = 10.24 $