Sora Industries has 65 million outstanding shares, $128 million in debt, $48 million in cash, and the following projected free cash flow for the next four years: 0 1 2 3 4 433.0 Year Earnings and FCF Forecast ($ 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 468.0 8.1% (313.6) 154.4 (93.6) (7.0) 53.8 (21.5) 7.0 (7.7) (6.3) 25.3 516.0 10.3% (345.7) 170.3 (103.2) (7.5) 59.6 (23.8) 7.5 (10.0) (8.6) 24.6 547.0 6.0% (366.5) 180.5 (109.4) (9.0) 62.1 (24.8) 9.0 (9.9) (5.6) 30.8 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 65.2 (26.1) 9.5 (10.4) (4.9) 33.3 a. Suppose Sora's revenue and free cash flow are expected to grow at a 4.1% 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.) e. Suppose that in July 2013, Nike Inc. had EPS of $2.72 and a book value of equity of $11.87 per share. P Price E Book Average Maximum Minimum 29.84 + 136% - 62% 2.44 + 70% -63% Enterprise Value Sales 1.12 +55% - 48% Enterprise Value EBITDA 9.76 + 86% -34% Using the average P/E multiple from the table above, estimate Nike's share price. What range of share prices do you estimate based on the highest and lowest P/E multiples in the table above? Using the average price to book value multiple in the table above, estimate Nike's share price. What range of share prices do you estimate based on the highest and lowest price-to-book value multiples in the table above? Sora Industries has 65 million outstanding shares, $128 million in debt, $48 million in cash, and the following projected free cash flow for the next four years: 0 1 2 3 4 433.0 Year Earnings and FCF Forecast ($ 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 468.0 8.1% (313.6) 154.4 (93.6) (7.0) 53.8 (21.5) 7.0 (7.7) (6.3) 25.3 516.0 10.3% (345.7) 170.3 (103.2) (7.5) 59.6 (23.8) 7.5 (10.0) (8.6) 24.6 547.0 6.0% (366.5) 180.5 (109.4) (9.0) 62.1 (24.8) 9.0 (9.9) (5.6) 30.8 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 65.2 (26.1) 9.5 (10.4) (4.9) 33.3 a. Suppose Sora's revenue and free cash flow are expected to grow at a 4.1% 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.) e. Suppose that in July 2013, Nike Inc. had EPS of $2.72 and a book value of equity of $11.87 per share. P Price E Book Average Maximum Minimum 29.84 + 136% - 62% 2.44 + 70% -63% Enterprise Value Sales 1.12 +55% - 48% Enterprise Value EBITDA 9.76 + 86% -34% Using the average P/E multiple from the table above, estimate Nike's share price. What range of share prices do you estimate based on the highest and lowest P/E multiples in the table above? Using the average price to book value multiple in the table above, estimate Nike's share price. What range of share prices do you estimate based on the highest and lowest price-to-book value multiples in the table above