Question

Sora Industries currently has 60 million outstanding shares, $120 million in debt and $40 million in excess cash. Sales in the recently concluded financial year was $433 million. They are projected to grow at 8.4% next year, and from the second year onwards, at 5% per year. Furthermore, you are given that in the last financial year, Sora’s

1. Cost of goods sold was 70% of sales,
2. Selling, general and administrative expenses were 20% of sales,
3. Depreciation was 1.5% of sales
4. Net fixed assets were 22.5% of sales
5. NOWC was 18% of sales.

Assume these ratios remain constant forever, except that COGS will be 68% of sales in each year moving forward. If the tax rate for the firm is 40%, and the WACC is 10%. What is the stock price of Sora Industries using the FCF model?

Answer 1

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