(13–7)

Corporate Valuation 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%.

Year 1 2 3 Free cash flow ($ millions) −$20 $30 $40

a. What is Dozier’s terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.)