Question
Sora Industries has 65 million outstanding shares, $ 124 million in debt, $ 48 million in cash, and the following projected free cash flow for
Sora Industries has
65
million outstanding shares,
$ 124
million in debt,
$ 48
million in cash, and the following projected free cash flow for the next four years
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:
a. Suppose Sora's revenue and free cash flow are expected to grow at a
3.1 %
rate beyond year 4. If Sora's weighted average cost of capital is
13.0 %
,
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 return 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. 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 (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.)
a. Suppose Sora's revenue and free cash flow are expected to grow at a
3.1 %
rate beyond year 4. If Sora's weighted average cost of capital is
13.0 %
,
what is the value of Sora's stock based on this information?
The stock price for this case is
$nothing
.
(Round to two decimal places.)
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