Sora Industries has 63 million outstanding shares, $120 milion in debt, 558 million in cash, and the following projected free cash flow for the next four years a. Suppose Sora's revenue and free cash flow are expected to grow at a 5.2% rate beyond year 4. If Sora's weighted average cost of capital is 14.0%, what is the value of Sora's stock based on this information? b. Sora's cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70% of sales, how would the estimate of the stock's value change? c. Let's retum to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at 67% of sales. However, now suppose Sora reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. Wha stock price would you estimate now? (Assume no other expenses, except taxes, are affected.) d. Sora's net working capital needs were estimated to be 18% of sales (which is their current level in year 0). If Sora can reduce this requirement to 12% of sales starting in year 1, but all other assumptions remain as in part (a), what stock price do you estimate for Sora? (Hint. This change will have the largest impact on Sora's free cash flow in year 1.) righted average cost of capital is 14.0%, what is the value of Sora's stock based on this information? i Data Table how would the estimate of the stock's value change? (Click on the following icon in order to copy its contents into a spreadsheet.) 0 1 2 3 4 433.0 Year Earnings & FCF Forecast ($ million) 1 Sales 2 Growth vs. Prior Year 3 Cost of Goods Sold 4 Gross Profit Selling, General & Admin. 6 Depreciation 7 EBIT 8 Less: Income tax at 40% 9 Plus: Depreciation 10 Less: Capital Expenditures 11 Less: Increases in NWC 12 Free Cash Flow 468.0 516.0 547.0 574.3 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) 7.0 7.5 9.0 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 Sora Industries has 63 million outstanding shares, $120 milion in debt, 558 million in cash, and the following projected free cash flow for the next four years a. Suppose Sora's revenue and free cash flow are expected to grow at a 5.2% rate beyond year 4. If Sora's weighted average cost of capital is 14.0%, what is the value of Sora's stock based on this information? b. Sora's cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70% of sales, how would the estimate of the stock's value change? c. Let's retum to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at 67% of sales. However, now suppose Sora reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. Wha stock price would you estimate now? (Assume no other expenses, except taxes, are affected.) d. Sora's net working capital needs were estimated to be 18% of sales (which is their current level in year 0). If Sora can reduce this requirement to 12% of sales starting in year 1, but all other assumptions remain as in part (a), what stock price do you estimate for Sora? (Hint. This change will have the largest impact on Sora's free cash flow in year 1.) righted average cost of capital is 14.0%, what is the value of Sora's stock based on this information? i Data Table how would the estimate of the stock's value change? (Click on the following icon in order to copy its contents into a spreadsheet.) 0 1 2 3 4 433.0 Year Earnings & FCF Forecast ($ million) 1 Sales 2 Growth vs. Prior Year 3 Cost of Goods Sold 4 Gross Profit Selling, General & Admin. 6 Depreciation 7 EBIT 8 Less: Income tax at 40% 9 Plus: Depreciation 10 Less: Capital Expenditures 11 Less: Increases in NWC 12 Free Cash Flow 468.0 516.0 547.0 574.3 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) 7.0 7.5 9.0 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
