Response to the following problem:
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 percent rate. Dozier's cost of capital is WACC 13%.
|
Time
|
1
|
2
|
3
|
|
Free cash flow
($ millions)
|
-$20
|
$30
|
$40
|
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 price per share?