Reference no: EM131851308

Sora Industries has 70 million outstanding? shares, $ 121 million in? debt, $ 47 million 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 24.6 30.8 33.3 a. Suppose? Sora's revenue and free cash flow are expected to grow at a 3.5 % rate beyond year four. If? Sora's weighted average cost of capital is 9.0 % ?, 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.)