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please answer all parts Sora Industries has 63 million outstanding shares, $124 million in debt, $47 million in cash, and the following projected free cash
please answer all parts
Sora Industries has 63 million outstanding shares, $124 million in debt, $47 million in cash, and the following projected free cash flow for the next four years: Year 0 1 2 3 Earnings and FCF Forecast ($ million) 1 Sales 433.0 547.0 574.3 516.0 10.3% 2 Growth vs. Prior Year 6.0% 5.0% 468.0 8.1% (313.6) 154.4 3 Cost of Goods Sold (345.7) (366.5) (384.8) 4 Gross Profit 170.3 180.5 189.5 5 Selling, General, & Admin. (93.6) (103.2) (109.4) (114.9) 6 Depreciation (7.0) (7.5) (9.0) (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 7.5 9.0 9.5 10 Less: Capital Expenditures (7.7) (10.0) (9.9) (10.4) 11 Less: Increase in NWC (6.3) (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 3.6% rate beyond year four. If Sora's weighted average cost of capital is 11.0%, 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 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 free cash flow in year 1.) Step by Step Solution
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