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 10.0 %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.)

Sora Industries has 62 million outstanding shares, $127 million in debt, $45 million in cash, and the following projected free cash flow for the next four years: Year Earnings and FCF Forecast ($ million) 1 Sales 2 Growth vs. Prior Year 3 Cost of Goods Sold 4 Gross Profit 433.0 468.0 516.0 547.0 574.3 5.0% (313.6)345.7) (366.5 (384.8) 89.5 Selling, General, & Admin. 6 Depreciation 7 EBIT 8 Less: Income Tax at 40% 9 Plus: Denreciation 8.1% 10.3% 6.0% 154,4 170.3 180.5 (93.6) (103.2) (109.4) (114.9 53.8 (7.0) (7.5) (9.0) (9.5) 65.2 (21.5) (23.8) (24.8) (26.1) 9.5 59.6 62.1 7.0 75 9.0