Sora Industries has 69 million outstanding shares, $120 million in debt, $40 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 4.6% rate beyond year 4. If Sora's weighted average cost of capital is 10.0%, 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.)

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.)