Question: Please help me to figure out this Problem, THX!!! Sora Industries has 60 million outstanding shares, $125 million in debt, $50 million in cash, and
Sora Industries has 60 million outstanding shares, $125 million in debt, $50 million in cash, and the following projected free cash flow for the next four years: Year 0 1 2 Earnings and FCF Forecast ($ 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 8.1% 10.3% 6.0% 5.0% (313.6) (345.7) (366.5) (384.8) 54.4170.3 180.5 189.5 (93.6) (103.2) (109.4) (114.9) (7.0 (7.5) (9.0) (9.5) 53.8 59.6 62.165.2 (21.5) (23.8) (24.8) (26.1) 7.07.59.09.5 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 (7.7) (10.) 9.9) (10.4) (6.3) (8.6) (5.6) (4.9) 25.325.3 24.624.6 30.830.8 33.333.3 a. Suppose Sora's revenue and free cash flow are expected to grow at a 5.2 % rate beyond year four. If Sora's weighted average cost of capital is 14.0 %, 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.)
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