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 7% a year. Dozier’s WACC is 13%. Its cash flows for Year 1 is negative $20 million (negative implies more cash is going out than coming in), Year 2 is $30 million, and Year 3 is $40 million.
a) What is Dozier’s horizon value? (Hint: Find the value of all FCSs beyond Year 3, and discount them back to Year 3.)
b) What is the current value of operations?
c) Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is its intrinsic price per share?