Given the information in the projected income statements , and assuming the projected improvements in working capital (that is, Ideko's working capital requirements though 2010 will be as shown here),use

EBITDA as a multiple to estimate the continuation value in 2010 (reproduce Table 19.15),

assuming the EBITDA multiple for Ideko remains at 9.1. Infer the EV/sales and the unlevered and levered P/E ratios implied by the continuation value you calculated. Also assume that Ideko's production plant will require an expansion in 2010, and that the cost of this expansion, $15.3 million, will be added to Ideko's debt in 2010. Ideko's balance sheet for 2005 is shown here .Ideko's free cash flows through 2010 are shown here

\fEstimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents Accounts Receivable Inventories Total Current Assets Property, Plant, and Equipment Goodwill Total Assets Liabilities and Stockholders' Equity Accounts Payable Debt Total Liabilities Stockholders' Equity Total Liabilities and Equity 6164 55350 6165 67679 55350 72332 195361 4654 100000 104654 90707 195361 Unit V Assessment-Kayla Hauge Page 1 of 4 Instructor: Dee Wessler, Chris Marsh, Brent Hatcher, Jennifer Byrom, Dee Wessler, Mustafa Sayim, Faculty Services, Dawn Dunson Course: MBA6081-14I-5 Student: Kayla Hauge Submitted: 12/20/16 10:12am Assignment: Unit V Assessment 8. Given the information in the projected income statements 1, and assuming the projected improvements in working capital 2 (that is, Ideko's working capital requirements though 2010 will be as shown here 3),use EBITDA as a multiple to estimate the continuation value in 2010 (reproduce Table 19.15 4), assuming the EBITDA multiple for Ideko remains at 9.1. Infer the EV/sales and the unlevered and levered P/E ratios implied by the continuation value you calculated. Also assume that Ideko's production plant will require an expansion in 2010, and that the cost of this expansion, $15.3 million, will be added to Ideko's debt in 2010. Ideko's balance sheet for 2005 is shown here 5. Ideko's free cash flows through 2010 are shown here 6. Ideko Financial Ratios Comparison, Mid-2005 Luxottica Oakley, Inc. Group Nike, Inc. 24.9 28.1 18.4 2.2 2.9 1.5 11.8 14.3 9.1 16.9% 18.5% 15.7% Ratio P/E EV/Sales EV/EBITDA EBITDA/Sales Sporting Goods Industry 20.1 1.6 11.3 12.2% Review Only 7 Click the icon to see the Worked Solution (Formula Solution). Calculate the continuation value in 2010 below: (Round the dollar amounts to the nearest $ 000.) Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 29,811 EBITDA Multiple Continuation Enterprise Value Debt Continuation Equity Value The EV/sales multiple is The unlevered P/E ratio is The levered P/E ratio is 9.1 x 271,280 (115,300) 155,980 2.0 18.4 15.1 . (Round to one decimal place.) . (Round to one decimal place.) . (Round to one decimal place.) 1: Data Table https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/finance 12/20/2016 Unit V Assessment-Kayla Hauge Income Statement ($ 000) Sales Cost of Goods Sold Raw Materials Direct Labor Costs Gross Profit Sales and Marketing Administrative EBITDA Depreciation EBIT Interest Expense (net) Pretax Income Income Tax Net Income Page 2 of 4 2005 2006 2007 (16,000) (17,580) 77,300 87,248 98,145 2008 110,168 2009 2010 (19,542) (21,678) (24,001) (26,525) 68,428 76,231 123,425 (18,000) (20,792) (23,800) (27,186) (30,996) (11,250) (14,544) (17,980) (22,001) (25,450) 43,300 48,876 54,803 61,304 138,030 (35,274) (28,462) (13,500) (13,096) (14,732) (15,435) (16,058) (17,958) (5,500) (6,020) (5,903) (5,798) (5,703) (7,148) (75) (6,720) (6,720) (6,720) (6,720) (6,720) (4,541) (2,974) (3,314) (3,973) (5,074) (5,580) 18,550 13,050 12,975 8,434 21,236 15,216 8,496 5,522 22,091 16,188 9,468 6,154 23,868 18,070 11,350 7,377 26,920 29,811 21,217 22,663 14,497 15,943 9,423 10,363 2: Data Table Ideko's Working Capital Requirements Working Capital Days Assets Accounts Receivable Based on: 2005 > 2005 90 60 Days Sales Revenue Days Raw Materials Raw Materials Costs 45 30 Minimum Cash Balance Sales Revenue 30 30 Finished Goods Liabilities Wages Payable Other Accounts Payable Raw Materials + Labor Costs 45 Direct Labor + Admin Costs 45 15 Raw Materials + Sales and Marketing 15 45 45 3: Data Table Working Capital ($ 000) Assets Accounts Receivable Raw Materials Finished Goods Minimum Cash Balance Total Current Assets Labilities Wages Payable Other Accounts Payable Total Current Liabilities Net Working Capital Increase in Net Working Capital 2005 2006 2007 2008 2009 2010 55,350 21,513 24,200 27,165 30,434 34,035 4,192 4,731 5,344 6,024 6,780 7,619 1,973 6,353 2,167 7,171 2,409 8,067 2,673 2,959 3,270 9,055 10,145 11,345 1,934 2,188 67,868 35,582 40,020 44,917 1,295 1,393 1,584 1,752 50,318 56,269 3,360 3,960 4,626 5,385 6,097 6,779 63,213 30,229 33,810 37,780 42,287 47,302 4,655 5,353 (32,984) 6,210 3,581 7,137 3,970 8,031 4,507 8,967 5,015 4: Figure https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/finance 12/20/2016 Unit V Assessment-Kayla Hauge Page 3 of 4 5: Data Table (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Estimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents 6,164 Accounts Receivable 55,350 Total Current Assets 67,679 Goodwill 72,332 Inventories 6,165 Property, Plant, and Equipment 55,350 Total Assets 195,361 Liabilities and Stockholders' Equity Accounts Payable 4,654 Debt 100,000 Total Liabilities 104,654 Stockholders' Equity 90,707 Total Liabilities and Equity 195,361 6: Data Table Free Cash Flow ($ 000) Net Income Plus: After-tax Interest Expense Unlevered Net Income Plus: Depreciation Less: Increase in NWC Less: Capital Expenditures Free Cash Flow of Firm Plus: Net Borrowing Less: After-tax Interest Expense Free Cash Flow to Equity 2005 2006 5,522 4,368 2007 6,154 4,368 2008 7,377 4,368 2009 9,423 4,368 2010 10,363 4,368 9,890 10,522 11,745 13,791 14,731 32,984 (3,581) (3,970) (4,507) (5,015) 6,020 (4,850) 44,044 (4,368) 39,676 5,903 (4,850) 7,994 (4,368) 3,626 5,798 (4,850) 8,723 (4,368) 4,355 5,703 (4,850) 10,137 (4,368) 4,355 7,148 (20,150) (3,286) 15,300 (4,368) 7,646 7: Review https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/finance 12/20/2016 Unit V Assessment-Kayla Hauge Page 4 of 4 Worked Solution (Formula Solution) The continuation value in 2010 and the EV/sales and the unlevered and levered P/E ratios implied by the continuation value are shown below: Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 EBITDA Multiple Continuation Enterprise Value Debt Continuation Equity Value 29,811 9.1 x 271,280 (115,300) 155,980 Common Multiples EV/Sales P/E (levered) P/E (unlevered) 2.0 x 15.1 x 18.4 x YOU ANSWERED: Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 EBITDA Multiple Continuation Enterprise Value Debt Continuation Equity Value 29,811 9.1 x 271,280 (115300) 386,580 26.2 26.2 https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/finance 12/20/2016