question d

3 4 (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 2 Earnings and FCF Forecast ($ million) 1 Sales 433.0 468.0 516.0 2 Growth vs. Prior Year 8.1% 10.3% 3 Cost of Goods Sold (313.6) (345.7) 4 Gross Profit 154.4 170.3 5 Selling, General, & Admin. (93.6) (103.2) 6 Depreciation (7.0) (7.5) 7 EBIT 53.8 59.6 8 Less: Income Tax at 25% (13.5) (14.9) 9 Plus: Depreciation 7.0 7.5 10 Less: Capital Expenditures (7.7) (10.0) 11 Less: Increase in NWC (6.3) (8.6) 12 Free Cash Flow 33.4 33.6 547.0 6.0% (366.5) 180.5 (109.4) (9.0) 62.1 (15.5) 9.0 (9.9) (5.6) 40.1 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 65.2 (16.3) 9.5 (10.4) (4.9) 43.1 Sora industries has 64 million outstanding shares, $123 million in debt, $56 million in cash, and the following projected free cash flow for the next four years are in the diagram. Suppose Sora's revenue and free cash flow are expected to grow at a 4.3% rate beyond year four. If Sora's weighted average cost of capital is 12.0%. 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, 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.)