Sora Industries has 65 million outstanding shares, $123 million in debt, $54 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 4.5% rate beyond year four. If Sora's weighted average cost of capital is 13.0%, 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 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 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.)

Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.)