Reference no: EM133205576

**Sora Industries has 64 million outstanding? shares, $120 million in? debt, $48 million in? cash, and the following projected free cash flow for the next four years 

                        Year     0          1          2          3          4

Earning & FCF Forecast ($millions)                                                                                

1          Sales                433.0    468.0    516.0    547.0    574.3

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)

4          Gross Profit                              154.4    170.3    180.5    189.5

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)    (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: 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 3.4% rate beyond year 4. If Sora's weighted average cost of capital is 14.0%?, 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 it's 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?

?(This change will have the largest impact on? Sora's free cash flow in year? 1.)

**In early? 2018, Coca-Cola Company? (KO) had a share price of $42.62? and had paid a dividend of $1.46 for the prior year. Suppose you expect? Coca-Cola to raise this dividend by approximately 6.5% per year in perpetuity.

a. If? Coca-Cola's equity cost of capital is 8.5%?, what share price would you expect based on your estimate of the dividend growth? rate?

b. Given? Coca-Cola's share? price, what would you conclude about your assessment of? Coca-Cola's future dividend? growth?