Terminal or Horizon Value
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13-4
Dozier Corporation is a fast growing supplier of office products. Analysts project the following free cash flows during the next 3 years, after which FCF is expeted to grow at a constant 7% rate. Doziers cost of capital is WACC=13%
Time 1 2 3
FCF -$20 $30 $40
a) What is Dozier's terminal, or horizon value?
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?
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Solution Summary
The solution explains how to calculate Dozier's terminal or horizon value, value of operations & price per share
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a. Terminal Value = FCF in year 4/(WACC-growth Rate)
FCF in year 4=FCF3 X (1+g) = 40X(1+7%) = 42.8
WACC=13%
Growth Rate=7%
Terminal Value in ...
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