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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% rate. Dozier's weighted average cost of capital is WACC = 13%. <image 1> What is the current value of operations for Dozier? | The current value of operations for Dozier is $149.1 million. To calculate this, we need to discount the projected FCFs back to the present at the WACC of 13%. The formula for the present value of a growing perpetuity is: PV = FCF / (WACC - g) Where: PV is the present value FCF is the free cash flow WACC is the weighted average cost of capital g is the growth rate In this case, the FCFs are -$20 million,$30 million, and $40 million for years 1, 2, and 3, respectively. The WACC is 13%, and the growth rate is 7%. Plugging these values into the formula, we get: PV = -$20 million / (0.13 - 0.07) +$30 million / (1.13)^2 + $40 million / (1.13)^3 PV = -$20 million / 0.06 + $30 million / 1.469 +$40 million / 1.610 PV = -$333.3 million +$20.4 million + $24.8 million PV = -$288.1 million This is the current value of operations for Dozier. Expected Answer: 527.89 Difficulty: Easy Subfield: Financial Management |

- Evaluation ID
- ad81d555-f88e-411a-809d-e94aba2ec802
- Created
- February 21, 2024

Raw Output

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