7. Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years (see MyFinanceLab for the data in Excel format):

1 Year 0 1 2 3 4 2 Earnings and FCF Forecast ($ million) 3 Sales 433.0 468.0 516.0 547.0 574.3 4 Growth Versus Prior Year 8.1% 10.3% 6.0% 5.0% 5 Cost of Goods Sold -313.6 -345.7 -366.5 -384.8 6 Gross Profit 154.4 170.3 180.5 189.5 7 Selling, General, and Administrative -93.6 -103.2 -109.4 -114.9 8 Depreciation -7.0 -7.5 -9.0 -9.5 9 EBIT 53.8 59.6 62.1 65.2 10 Less: Income Tax at 40% -21.5 -23.8 -24.8 -26.1 11 Plus: Depreciation 7.0 7.5 9.0 9.5 12 Less: Capital Expenditures -7.7 -10.0 -9.9 -10.4 13 Less: Increase in NWC -6.3 -8.6 -5.6 -4.9 14 Free Cash Flow 25.3 24.6 30.8 33.3

a. Suppose Sora's revenues and free cash flow are expected to grow at a 5% rate beyond year 4. If Sora's weighted average cost of capital is 10%, 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 0). If Sora can reduce this requirement to 12% of sales starting in year 1, but all other assumptions remain as in part (a), what stock price do you estimate for Sora? (Hint: This change will have the largest effect on Sora's free cash flow in year 1.)