|Earning & FCF Forecast ($millions)|
|2||Growth vs. Prior Year||8.1%||10.3%||6.0%||5.0%|
|3||Cost of Goods Sold||(313.6)||(345.7)||(366.5)||(384.8)|
|5||Selling, General & Admin.||(93.6)||(103.2)||(109.4)||(114.9)|
|8||Less: Income tax at 40%||(21.5)||(23.8)||(24.8)||(26.1)|
|10||Less: Capital Expenditures||(7.7)||(10.0)||(9.9)||(10.4)|
|11||Less: Increases in NWC||(6.3)||(8.6)||(5.6)||(4.9)|
|12||Free Cash Flow||25.3||24.6||30.8||33.3|
a. Suppose Sora’s revenue and free cash flow are expected to grow at a 5.0% 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? The stock price for this case is $ round to two decimal points.
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.) Get Finance homework help today
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