Parts A-D

ut Sara Industries has 67 million outstanding shares, 5125 million in debt 544 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 (5 million) 1 Sales 4330 4680 5160 5470 5743 2 Growth vs. Prior Year 81% 10.3% 60% 5.0% 3 Cost of Goods Sold (3136) (3457) (366.5) (384.8) 4 Gross Profit 154.4 1703 180.5 1895 5 Selling. General, & Admin (936) (103.2) (109.4) (1149) 6 Depreciation (7.0) (75) (9.0) (9.5) 7 EBIT 538 59.6 621 8 Less Income Tax at 40% (21.5) (238) (248) (261) 9 Plus Denvacation 75 652 9 Plus. Depreciation 70 75 9.0 95 10 Less Capital Expenditures (17) (10.0) (9.9) (10.4) 11 Less: Increase in NWC (6.3) (86) (56) (4.9) 12 Free Cash Flow 253 24.6 30.8 333 a. Suppose Sora's revenue and free cash flow are expected to grow at a 37% rate beyond your four. If Sora's weighted average cost of capital is 140%, what is the value of Sora stock based on this information? b. Sara'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? (Assure no other expenses, except taxes, are affected.) d. Sora's networking 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 tree rach nur in waar 1