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 7% rate. Dozier"s weighted average cost of capital is WACC = 13%.
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Year
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1
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2
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3
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Free cash flow ($ millions)
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-$20
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$30
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$40
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a. What is Dozier"s terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.)
b. What is the current value of operations for Dozier?
c. 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?