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 

Income Statement ($ 000)	2005	2006	2007	2008	2009	2010
Sales	74,600	85,148	96,453	108,901	122,594	137,644
Cost of Goods Sold
Raw Materials	-16,000	-17,667	-19,815	-22,153	-24,694	-27,454
Direct Labor Costs	-18,000	-21,092	-24,408	-28,154	-32,378	-37,139
Gross Profit	40,600	46,389	52,230	58,594	65,522	73,051
Sales and Marketing	-11,250	-14,024	-17,284	-21,094	-24,298	-27,281
Administrative	-13,500	-12,925	-14,642	-15,442	-16,158	-18,141
EBITDA	15,850	19,440	20,304	22,058	25,066	27,629
Depreciation	-5,500	-5,950	-5,850	-5,760	-5,679	-7,136
EBIT	10,350	13,490	14,454	16,298	19,387	20,493
Interest Expense (net)	-75	-6,680	-6,680	-6,680	-6,680	-6,680
Pretax Income	10,275	6,810	7,774	9,618	12,707	13,813
Income Tax	-3,596	-2,384	-2,721	-3,366	-4,447	-4,835
Net Income	6,679	4,426	5,053	6,252	8,260	8,978

Working Capital Days		2005	> 2005
Assets	Based on:	Days	Days
Accounts Receivable	Sales Revenue	90	90
Raw Materials	Raw Materials Costs	45	45
Finished Goods	Raw Materials+Labor Costs	45	45
Minimum Cash Balance	Sales Revenue	30	30
Liabilities
Wages Payable	Direct Labor+Admin Costs	15	15
Other Accounts Payable	Raw Materials+Sales and Marketing	45	45

Working Capital ($ 000)	2005	2006	2007	2008	2009	2010
Assets
Accounts Receivable	54,550	20,995	23,783	26,852	30,229	33,940
Raw Materials	1,973	2,178	2,443	2,731	3,044	3,385
Finished Goods	4,192	4,779	5,452	6,202	7,036	7,964
Minimum Cash Balance	6,132	6,998	7,928	8,951	10,076	11,313
Total Current Assets	66,847	34,950	39,606	44,736	50,385	56,602
Labilities
Wages Payable	1,295	1,398	1,605	1,792	1,995	2,272
Other Accounts Payable	3,360	3,907	4,574	5,332	6,040	6,748
Total Current Liabilities	4,655	5,305	6,179	7,124	8,035	9,020
Net Working Capital	62,192	29,645	33,427	37,612	42,350	47,582
Increase in Net Working Capital		-32,547	3,782	4,185	4,738	5,232

Estimated 2005 Balance Sheet Data for  Ideko Corporation
Balance Sheet ($ 000)
Assets
Cash and Equivalents	6164
Accounts Receivable	54550
Inventories	6165
Total Current Assets	66879
Property, Plant, and Equipment	54550
Goodwill	72332
Total Assets	193761
Liabilities and Stockholders' Equity
Accounts Payable	4654
Debt	100000
Total Liabilities	104654
Stockholders' Equity	89107
Total Liabilities and Equity	193761

Free Cash Flow ($ 000)	2005	2006	2007	2008	2009	2010
Net Income		4,426	5,053	6,252	8,260	8,978
Plus: After-tax Interest Expense		4,342	4,342	4,342	4,342	4,342
Unlevered Net Income		8,768	9,395	10,594	12,602	13,320
Plus: Depreciation		5,950	5,850	5,760	5,679	7,136
Less: Increase in NWC		32,547	-3,782	-4,185	-4,738	-5,232
Less: Capital Expenditures		-4,950	-4,950	-4,950	-4,950	-20,250
Free Cash Flow of Firm		42,315	6,513	7,219	8,593	-5,026
Plus: Net Borrowing						15,300
Less: After-tax Interest Expense		-4,342	-4,342

TABLE 19.15 SPREADSHEET Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 32,094 EBITDA multiple Continuation Enterprise Value Continuation Equity Value 1 2 3 4 5 Continuation Value Estimate for Ideko Debt 9.1x 292,052 (120,000) 172,052 Common Multiples EV/Sales P/E (levered) P/E (unlevered) 18x 16.3x 18.4x