Sora Industries has 65 million outstanding shares, $127 million in debt, $59 million in cash, and the following projected free cash flow for the next four years: Year 0 1 2 3 4 C Earnings and FCF Forecast ($ 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% 5 Selling, General, & Admin. (103.2) (109.4) (114.9) (93.6) (7.0) 6 Depreciation (7.5) (9.0) (9.5) 7 EBIT 53.8 59.6 62.1 65.2 8 Less: Income Tax at 40% (21.5) (23.8) (24.8) (26.1) 9 Plus: Depreciation 7.0 7.5 9.0 9.5 10 Less: Capital Expenditures (7.7) (10.0) (9.9) (10.4) 11 Less Increase in NWC (6.3) (8.6) (5.6) (4.9) 12 Free Cash Flow 25.3 24.6 30.8 33.3 FEED 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 9.0%, what is the value of Sora stock based on this information? The stock price for this case is S 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? The stock price for this case when COGS increases, is $ 433.0 COLLE W 468.0 8.1% (313.6) 154.4 (93.6) (7.0) 53.8 (21.5) 516.0 547.0 10.3% 6.0% (345.7) (366.5) 170.3 180.5 (103.2) (109.4) (7.5) (9.0) 59.6 62.1 (23.8) (24.8) 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 65.2 (26.1)
Sora Industries has 65 million outstanding shares, $127 million in debt, $59 million in cash, and the following projected free cash flow for the next four years: Year 0 1 2 3 4 C Earnings and FCF Forecast ($ 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% 5 Selling, General, & Admin. (103.2) (109.4) (114.9) (93.6) (7.0) 6 Depreciation (7.5) (9.0) (9.5) 7 EBIT 53.8 59.6 62.1 65.2 8 Less: Income Tax at 40% (21.5) (23.8) (24.8) (26.1) 9 Plus: Depreciation 7.0 7.5 9.0 9.5 10 Less: Capital Expenditures (7.7) (10.0) (9.9) (10.4) 11 Less Increase in NWC (6.3) (8.6) (5.6) (4.9) 12 Free Cash Flow 25.3 24.6 30.8 33.3 FEED 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 9.0%, what is the value of Sora stock based on this information? The stock price for this case is S 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? The stock price for this case when COGS increases, is $ 433.0 COLLE W 468.0 8.1% (313.6) 154.4 (93.6) (7.0) 53.8 (21.5) 516.0 547.0 10.3% 6.0% (345.7) (366.5) 170.3 180.5 (103.2) (109.4) (7.5) (9.0) 59.6 62.1 (23.8) (24.8) 574.3 5.0% (384.8) 189.5 (114.9) (9.5) 65.2 (26.1)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 9MC
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Question
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Transcribed Image Text:Please answer part a and b if possible I will
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Sora Industries has 65 million outstanding shares, $127 million in debt, $59 million in cash, and the following projected free
cash flow for the next four years:
Year
0
1
2
3
4
C
Earnings and FCF Forecast ($ million)
1 Sales
468.0
2 Growth vs. Prior Year
8.1%
3
Cost of Goods Sold
(313.6)
4 Gross Profit
154.4
5 Selling, General, & Admin
(93.6)
6
Depreciation
(7.0)
7 EBIT
53.8
8 Less: Income Tax at 40%
(21.5)
5 Selling, General, & Admin.
(93.6) (103.2)
(109.4)
(114.9)
6 Depreciation
(7.0)
(7.5)
(9.0)
(9.5)
7 EBIT
53.8
59.6
62 1
65.2
8 Less: Income Tax at 40%
(21.5)
(23.8)
(248)
(26.1)
9 Plus: Depreciation
7.0
7.5
9.0
9.5
10 Less: Capital Expenditures
(7.7)
(10,0)
(9.9)
(10.4)
11 Less Increase in NWC
(6.3)
(8.6)
(5.6)
(4.9)
12 Free Cash Flow
L
25.3
24.6
30.8
33.3
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 9.0%, what is the value of Sora stock based on this information?
The stock price for this case is S
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?
The stock price for this case, when COGS increases, is $
433.0
COCTICED
516.0
10.3%
(345.7)
170.3
(103.2)
(7.5)
59.6
(23.8)
547.0
6.0%
(366.5)
180.5
(109.4)
(9.0)
62.1
(24.8)
574.3
5.0%
(384.8)
189.5
(114.9)
(9.5)
65.2
(26.1)
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