Dionex $2.02 1993 14% 5 (1994 1998) 7% 1993 $2 $4.20 7 50% $106
1993 6% 1994 1998 4% 10% 1993 1.20 1.10 1998 7% 4.5%1. FCFE 1994
1998 2. ( 1998) 150% 25% 3.
FCFE----------------------------------------------------------Question
4 - Two-Stage FCFE Model: An Extended ApplicationDionex
Corporation, a leader in the development and manufacture of
ionchromography systems (used to identify contaminants in
electronic devices), reportedearnings per share of $2.02 in 1993,
and paid no dividends. These earnings areexpected to grow 14% a
year for five years (1994 to 1998) and 7% a year after that.The
firm reported depreciation of $2 million in 1993 and capital
spending of $4.20million, and had 7 million shares outstanding. The
working capital is expected toremain at 50% of revenues, which were
$106 million in 1993, and are expected togrow 6% a year from 1994
to 1998 and 4% a year after that. The firm is expected tofinance
10% of its capital expenditures and working capital needs with
debt. Dionexhad a beta of 1.20 in 1993, and this beta is expected
to drop to 1.10 after 1998. (Thetreasury bond rate is 7%. The risk
premuim is 5.5%. )A. Estimate the expected free cash flow to equity
from 1994 to 1998, assuming thatcapital expenditures and
depreciation grow at the same rate as earnings.B. Estimate the
terminal price per share (at the end of 1998). Stable firms in
thisindustry have capital expenditures which are 150% of
depreciation, and maintainworking capital at 25% of revenues.C.
Estimate the value per share today, based upon the FCFE model.
