Sora Industries has 62 million outstanding shares, $123 million in debt, $54 million in cash and the following projected free cash flow for the next four years:

Suppose Sora's revenue and free cash flow are expected to grow at a 5.7% rate beyond year four. If Sora's weighted average cost of capital is 10% the price of her stock is approx $9.34.

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 remain true from above, 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.)

Year 1 3 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 EBIT 8 Less: Income Tax at 40% 9 Plus: Depreciation 10 Less: Capital Expenditures 11 Less: Increase in NWC 12 Free Cash Flow 433 468 516 547 574.3 8.1% 10.3% 6.0% 5.0% |(313.6) (345.7) (366.5) (384.8) 154.4 170.3 180.5 189.5 (93.6) (103.2) (109.4) (114.9) (7.0) (7.5) (9.0) (9.5) 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) (6.3) (8.6) (5.6) (4.9) 25.3 24.6 30.8 33.3 Year 1 3 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 EBIT 8 Less: Income Tax at 40% 9 Plus: Depreciation 10 Less: Capital Expenditures 11 Less: Increase in NWC 12 Free Cash Flow 433 468 516 547 574.3 8.1% 10.3% 6.0% 5.0% |(313.6) (345.7) (366.5) (384.8) 154.4 170.3 180.5 189.5 (93.6) (103.2) (109.4) (114.9) (7.0) (7.5) (9.0) (9.5) 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) (6.3) (8.6) (5.6) (4.9) 25.3 24.6 30.8 33.3