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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 $ Tear . 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. 7..5 million Suppose Dantzler has $116 million of debt and 27 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.

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 $ Tear . 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. 7..5 million Suppose Dantzler has $116 million of debt and 27 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.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Answer all questions! James Company is a fast-growing supplier of office products. Analysts project the following free cash flows (FCF) during the next 3 years, after which FCF is expected to grow at a constant 8% rate. James's WACC is 10% Corporate valuation Dollars/shares in millions: FCF1: -11.00 FCF2: $33.00 FCF3: $49.00 Constant growth rate gn: 8.00% WACC: 10.00% Market value of debt: $116.00 Common shares outstanding: 27 Fcfs Horizon Value: 1: -11.00 2: 33.00 3: 49.00
## Dantzler Corporation Free Cash Flow Projection Dantzler Corporation is a rapidly expanding supplier of office products. Analysts have forecasted the following free cash flows (FCFs) for the next three years. After this period, FCF is anticipated to grow at a constant rate of 8%. Dantzler's Weighted Average Cost of Capital (WACC) is 10%. ### Free Cash Flow Analysis #### Projected Free Cash Flows - **Year 0**: -$11 million - **Year 1**: $33 million - **Year 2**: $49 million ### Diagram Explanation The diagram is a timeline that visualizes the projected free cash flows over three years. Each year is separated by a vertical line with the corresponding FCF value listed beneath. ### Task #### Part A: Horizon or Continuing Value Calculation *Question*: What is Dantzler’s horizon, or continuing, value? **Hint**: Calculate the total value of all free cash flows beyond Year 3, discounted back to Year 3. *Instructions*: - Round your answer to two decimal places. - Enter your answer in millions. For instance, an answer of $13,550,000 should be written as 13.55. (Note: The actual solution is not provided here, focus on understanding the calculation method specified in the hint.)
Transcribed Image Text:## Dantzler Corporation Free Cash Flow Projection Dantzler Corporation is a rapidly expanding supplier of office products. Analysts have forecasted the following free cash flows (FCFs) for the next three years. After this period, FCF is anticipated to grow at a constant rate of 8%. Dantzler's Weighted Average Cost of Capital (WACC) is 10%. ### Free Cash Flow Analysis #### Projected Free Cash Flows - **Year 0**: -$11 million - **Year 1**: $33 million - **Year 2**: $49 million ### Diagram Explanation The diagram is a timeline that visualizes the projected free cash flows over three years. Each year is separated by a vertical line with the corresponding FCF value listed beneath. ### Task #### Part A: Horizon or Continuing Value Calculation *Question*: What is Dantzler’s horizon, or continuing, value? **Hint**: Calculate the total value of all free cash flows beyond Year 3, discounted back to Year 3. *Instructions*: - Round your answer to two decimal places. - Enter your answer in millions. For instance, an answer of $13,550,000 should be written as 13.55. (Note: The actual solution is not provided here, focus on understanding the calculation method specified in the hint.)
### Finance Problem Set #### a. Horizon or Continuing Value **Question:** 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.) **Note:** 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. **Answer:** \[ \boxed{3} \text{ million (incorrect)} \] #### b. Firm's Value Today **Question:** What is the firm's value today? **Note:** 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. **Answer:** \[ \boxed{7.5} \text{ million (incorrect)} \] #### c. Current Price Per Share **Question:** Suppose Dantzler has $116 million of debt and 27 million shares of stock outstanding. What is your estimate of the current price per share? **Note:** Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250. **Answer:** \[ \boxed{4.3} \text{ (incorrect)} \]
Transcribed Image Text:### Finance Problem Set #### a. Horizon or Continuing Value **Question:** 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.) **Note:** 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. **Answer:** \[ \boxed{3} \text{ million (incorrect)} \] #### b. Firm's Value Today **Question:** What is the firm's value today? **Note:** 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. **Answer:** \[ \boxed{7.5} \text{ million (incorrect)} \] #### c. Current Price Per Share **Question:** Suppose Dantzler has $116 million of debt and 27 million shares of stock outstanding. What is your estimate of the current price per share? **Note:** Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250. **Answer:** \[ \boxed{4.3} \text{ (incorrect)} \]
Expert Solution
Step 1: Formula

We can determine the horizon value using the formula below:

H o r i z o n space v a l u e space i n space y e a r space 3 space equals space fraction numerator f r e e space c a s h space f l o w space i n space y e a r space 3 space cross times left parenthesis 1 plus g r o w t h space percent sign right parenthesis over denominator W A C C thin space minus space g r o w t h space percent sign end fraction

The value of the firm is the PV of all FCF and horizon value discounted at the WACC. 

We can determine the share price using the formula below:

S h a r e space p r i c e space equals space fraction numerator V a l u e space o f space f i r m space minus space v a l u e space o f space d e b t over denominator n u m b e r space o f space s h a r e s space o u t s tan d i n g end fraction

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