F D E F G H 1 Year ol 1 2 3 4 1 2 Earnings and FCF Forecast ($ million) 3 19.0) 4 5 6 7 8 9 10 11 12 13 119.5) 1 Sales 2 Growth vs. Prior Year 3 Cost of Goods Sold 4 Gross Profit 5 Selling, General, & Admin. 6 Depreciation 7 EBIT 8 Less: Income Tax at 40% 9 Plus: Depreciation 10 Less: Capital Expenditures 11 Less: Increase in NWC 12 Free Cash Flow 433 468 516 5471 574.3 18.1% 10.3% 6.0% 5.0% 313.6) (345.7) 366.5) 384.8) 154.4 170.3 180.5 189.5 (936) 103.2) (109.4) (114.9) 17.0) (7.5) 53.8 59.6 62.1 65.2 (21.5) (23.8) (24.8) (26.1) 7 7.5 9 9.5 (7.7) (10.0) (9.9) (10.4) 16.3) (8.6) 15.6) (4.9) 25.3 24.6 30.8 33.3 14 15 a. Suppose Sora's revenue and free cash flow are expected to grow at a 3.7% rate beyond year four. If Sora's weighted average cost of capital is 13.0%, 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 (d, 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.) reciation Sora Industries has 67 million outstanding shares, $121 million in debt, $46 million in cash, and the following projected free cash flow for the next four years: 0 1 2 3 4 Income Deprec Capital 5: Increase e Cash Flo 433.0 il Year Earnings and FCF Forecast ($ million) 1 Sales 2 Growth vs. Prior Year 3 Cost of Goods Sold 4 Gross Profit 5 Selling, General, & Admin 6 Depreciation 7 ERIT 468.0 8.1% (313.6) 154.4 (93.6) (7.0) 52 516.0 10.3% (345.7) 170.3 (1032) (7.5) 506 547.0 6.0% (366.5) 180.5 (109.4) (9.0) 621 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 652