13) Sora Industries has 62 million outstanding shares, $120 million in debt, $59 million in cash, and the following projected free cash flow for the next four years

a. Suppose Sora's revenue and free cash flow are expected to grow at a 4.3% rate beyond year 4. IfSora's weighted average cost of capital is 13.0%, what is the value of Sora's stock based on thisinformation?

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

c. Let's return to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at67% of sales. However, now suppose Sora reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. What stock price would you estimate now? (Assume no otherexpenses, except taxes, are affected.)

d. Sora's net working capital needs were estimated to be 18% of sales (which is 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 impact on Sora's free cash flow in year 1.)

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