CORPORATE VALUATION Dantzler Corporation is a fast-growing supplier of office pr

Question

CORPORATE VALUATION

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 WACC is 15%.

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.) 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

Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ...... FCF ($ millions) - $17 $30 $60

Explanation / Answer

According to dividend-discount model,

P0 = D1/(R-G)

P0 = Current value

D1 - cashflow at t =1

R - Required rate

G - Growth rate

P3 = D4 / (R-g) = 60*(1+0.07)/(0.15-0.07) = 802.50

To find the current value discount the future values and P3

P0 = -17/(1+0.15)^1 + 30/(1+0.15)^2 + 60/(1+0.15)^3 + 802.50/(1+0.15)^3 = 575.01 million

Current value = $575.01 million

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