Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 7% ate. Dantzler's WACC is 11%. Year 1 2
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 7% ate. Dantzler's WACC is 11%. Year 1 2
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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Transcribed Image Text:**Dantzler Corporation Financial Analysis Exercise**
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 Weighted Average Cost of Capital (WACC) is 11%.
**Yearly Free Cash Flow (FCF in $ millions):**
- Year 0: $0 (initial point)
- Year 1: -$21
- Year 2: $17
- Year 3: $46
**Questions:**
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.
- Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
- **Answer:** $________ million
b. **What is the firm's market value today?**
- Assume that Dantzler has zero nonoperating assets.
- Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
- **Answer:** $________ million
c. **What is your estimate of the current price per share?**
- Dantzler has $161.00 million of debt and 31 million shares of stock outstanding.
- Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.
- **Answer:** $________
**Graphical Representation:**
The diagram shows a timeline from Year 0 to Year 3 with corresponding FCF values marked vertically:
- Negative cash flow of $21 million in Year 1.
- Positive cash flow of $17 million in Year 2.
- Positive cash flow of $46 million in Year 3.
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