How would the estimate of the? stocks value? change

Assignment Help Financial Management

Reference no: EM131989535

Sora Industries has 60 million outstanding? shares, $123 million in? debt, $43million in? cash, and the following projected free cash flow for the next four? years:

		Year	0	1	2	3	4
Earnings and FCF Forecast? ($ million)
1	Sales		433.0	468.0	516.0	547.0	574.3
2	Growth vs. Prior Year			?8.1%	?10.3%	?6.0%	?5.0%
3	Cost of Goods Sold			?(313.6)	?(345.7)	?(366.5)	?(384.8)
4	Gross Profit			154.4	170.3	180.5	189.5
5	?Selling, General,? & Admin.			?(93.6)	?(103.2)	?(109.4)	?(114.9)
6	Depreciation			?(7.0)	?(7.5)	?(9.0)	?(9.5)
7	EBIT			53.8	59.6	62.1	65.2
8	?Less: Income Tax at? 40%			?(21.5)	?(23.8)	?(24.8)	?(26.1)
9	?Plus: Depreciation			7.0	7.5	9.0	9.5
10	?Less: Capital Expenditures			?(7.7)	?(10.0)	?(9.9)	?(10.4)
11	?Less: Increase in NWC			?(6.3)	?(8.6)	?(5.6)	?(4.9)
12	Free Cash Flow			25.3 25.3	24.6 24.6	30.8 30.8	33.333.3

a. Suppose? Sora's revenue and free cash flow are expected to grow at a 4.7 % rate beyond year four. If? Sora's weighted average cost of capital is 14.0 % what is the value of Sora stock based on this? information?

b.? Sora's cost of goods sold was assumed to be? 67% of sales. If its cost of goods sold is actually? 70% of? sales, how would the estimate of the? stock's value? change?

c. Return to the assumptions of part ?(a?) and suppose Sora can maintain its cost of goods sold at? 67% of sales.? However, the firm reduces its? selling, general, and administrative expenses from? 20% of sales to? 16% of sales. What stock price would you estimate? now? (Assume no other? expenses, except? taxes, are? affected.)

d.? Sora's net working capital needs were estimated to be? 18% of sales? (their current level in year? zero). If Sora can reduce this requirement to? 12% of sales starting in year? 1, but all other assumptions are as in ?(a?),what stock price do you estimate for? Sora?

?(Hint?:

This change will have the largest impact on? Sora's free cash flow in year? 1.)

Reference no: EM131989535

Questions Cloud

Differences between sensitivity analysis and scenario : Discuss the important differences between sensitivity analysis and scenario analysis in the risk analysis of capital budgeting and, maybe more importantly

Which types of cables should be used for wired technologies : HC1041 IT for Business - Impact of IT on Business - How could this POS system facilitate decision making - Recommend telecommunication options for this POS

Capital stucture affect the market value of the firm : For the question' Fan Plc is a publicly traded firm. The market value of its equity is $70 million and its debt $30 million.

What are the weaknesses of using replacement cost : What are the weaknesses of using replacement cost? What are the two most common sources of capital to most firms?

How would the estimate of the? stocks value? change : If its cost of goods sold is actually? 70% of? sales, how would the estimate of the? stock's value? change?

Determine the net advantage of leasing and advise : Determine the Net Advantage of Leasing and advise the company on the option they should take based on your finding.

Management information systems in a globalized world : Explain business process and its relationship to management information systems in a globalized world.

Discuss the project purpose and background : For the final project in the course, you will analyze the case study Value-Driven Project and Portfolio Management in the Pharmaceutical Industry

Change the company determination : Assume that the new actions will have no effect on total assets and sales, and it will not change the company's determination to use 100%

User Account

All Pages