7. Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years: | Year 0 1 2 3 4 Earnings and FCF Forecast ($ millions) 1 Sales 433.0 468. 0 516. 0 5470574.3 2 Growth versus 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, and Administrative (93.6) (103.2) (109.4) (114.9) 6 Depreciation (7.01 (75) 19.0) (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 75 9.0 9.5 10 Less: Capital Expenditures (7.71 (10,0) (9.9) (10.4) 11 Less: Increase in NWC 16.3) (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 5% rate beyond year 4. If Sora's weighted average cost of capital is 10%, what is the value of Sora's 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. Let's return to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at 67% 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 other expenses, 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.)