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Forecast Ideko's free cash flow (reproduce Table 19.10), assuming Ideko's market share will increase by 0.60 percent per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital occur (that is, Ideko's working capital requirements through 2010 will be as shown here). Ideko's pro-forma income statements for 2005-2010 are shown here while its balance sheet for 2005 is shown here. Ideko's production plant will require an expansion in 2010 (when production volume will exceed the current level by 50%), and the cost of this expansion will be $14.2 million. This amount will be borrowed from a financial institution at an interest rate of 6.8%. The new projected capital investments are shown here (Assume an income tax rate of 35%.)

Free Cash Flow ($ 000)

2006

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

Working Capital Days 2005 > 2005 Assets Based on: Days Days Accounts Receivable Sales Revenue 90 60 Raw Materials Raw Materials Costs 45 30 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	17,639	13,359	15,129	17,084	19,243	21,623
Raw Materials	1,958	1,466	1,642	1,833	2,041	2,268
Finished Goods	4,131	4,715	5,366	6,091	6,897	7,794
Minimum Cash Balance	5,880	6,680	7,564	8,542	9,621	10,812
Total Current Assets	29,608	26,220	29,701	33,550	37,802	42,497
Labilities
Wages Payable	1,258	1,344	1,540	1,718	1,911	2,174
Other Accounts Payable	3,290	3,853	4,495	5,223	5,906	6,598
Total Current Liabilities	4,548	5,197	6,035	6,941	7,817	8,772
Net Working Capital	25,060	21,023	23,666	26,609	29,985	33,725
Increase in Net Working Capital		(4,037)	2,643	2,943	3,376	3,740

Income Statement ($ 000)

2005

2006

2007

2008

2009

2010

Sales

71,534

81,268

92,033

103,928

117,059

131,542

Cost of Goods Sold

Raw Materials

(15,880)

(17,838)

(19,974)

(22,300)

(24,836)

(27,594)

Direct Labor Costs

(17,625)

(20,406)

(23,551)

(27,101)

(31,108)

(35,623)

Gross Profit

38,029

43,024

48,508

54,527

61,115

68,325

Sales and Marketing

(10,809)

(13,417)

(16,483)

(20,068)

(23,072)

(25,927)

Administrative

(12,976)

(12,304)

(13,934)

(14,695)

(15,382)

(17,285)

EBITDA

14,244

17,303

18,091

19,764

22,661

25,113

Depreciation

(5,520)

(5,448)

(5,383)

(5,325)

(5,272)

(6,645)

EBIT

8,724

11,855

12,708

14,439

17,389

18,468

Interest Expense (net)

(75)

(6,698)

(6,698)

(6,698)

(6,698)

(6,698)

Pretax Income

8,649

5,157

6,010

7,741

10,691

11,770

Income Tax

(3,027)

(1,805)

(2,104)

(2,709)

(3,742)

(4,120)

Net Income

5,622

3,352

3,906

5,032

6,949

7,650

Estimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents 6,164 Accounts Receivable 17,639 Inventories 6,165 Total Current Assets 29,968 Property, Plant, and Equipment 49,680 Goodwill 72,332 Total Assets 151,980 Liabilities and Stockholders' Equity Accounts Payable 4,654 Debt 98,500 Total Liabilities 103,154 Stockholders' Equity 48,826 Total Liabilities and Equity 151,980

2005 2006 2007 2008 2009 2010 New Investment 4,800 4,800 4,800 4,800 4,800 19,000 Depreciation (5,520) (5,448) (5,383) (5,325) (5,272) (6,645)

idekes pro-forma incone stumens for 20052010 are show tere (Assume an inoome tax rate of 35% ) Calavlate laeko's tee cash flow through 20 to below: (Round to the nearest $000 ) (Click on the following icon in order to copy its contents into a spreadsheet.) \begin{tabular}{lrrrrrrr} Working Capital ($000) & 2005 & 2006 & 2007 & 2008 & 2009 & 2010 \\ \hline Assets & & & & & & \\ Accounts Receivable & 17,639 & 13,359 & 15,129 & 17,084 & 19,243 & 21,623 \\ Raw Materials & 1,958 & 1,466 & 1,642 & 1,833 & 2,041 & 2,268 \\ Finished Goods & 4,131 & 4,715 & 5,366 & 6,091 & 6,897 & 7,794 \\ Minimum Cash Balance & 5,880 & 6,680 & 7,564 & 8,542 & 9,621 & 10,812 \\ \hline Total Current Assets & 29,608 & 26,220 & 29,701 & 33,550 & 37,802 & 42,497 \\ Labilities & & & & & & \\ Wages Payable & 1,258 & 1,344 & 1,540 & 1,718 & 1,911 & 2,174 \\ Other Accounts Payable & 3,290 & 3,853 & 4,495 & 5,223 & 5,906 & 6,598 \\ Total Current Liabilties & 4,548 & 5,197 & 6,035 & 6,941 & 7,817 & 8,772 \\ Net Working Capital & 25,060 & 21,023 & 23,666 & 26,609 & 29,985 & 33,725 \\ Increase in Net Working Capital & & (4,037) & 2,643 & 2,943 & 3,376 & 3,740 \\ \hline \end{tabular} (Click on the following icon in order to copy its contents into a spreadsheet.) Data table (Click on the following icon D in order to copy its contents into a spreadsheet.) Forecast Ideko's free cash flow (reproduce Table 19.10 ), assuming Ideko's market share will increase by 0.60 percent per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital occur (that is, Ideko's working capital requirements through 2010 will be as shown here ). Ideko's pro-forma income statements for 2005-2010 are shown here , while its balance sheet for 2005 is shown here . Ideko's production plant will require an expansion in 2010 (when production volume will exceed the current level by 50% ), and the cost of this expansion will be $14.2 million. This amount will be borrowed from a financial institution at an interest rate of 6.8%. The new proiected capital investments a (Assume an income tax rate of 35%.) idekes pro-forma incone stumens for 20052010 are show tere (Assume an inoome tax rate of 35% ) Calavlate laeko's tee cash flow through 20 to below: (Round to the nearest $000 ) (Click on the following icon in order to copy its contents into a spreadsheet.) \begin{tabular}{lrrrrrrr} Working Capital ($000) & 2005 & 2006 & 2007 & 2008 & 2009 & 2010 \\ \hline Assets & & & & & & \\ Accounts Receivable & 17,639 & 13,359 & 15,129 & 17,084 & 19,243 & 21,623 \\ Raw Materials & 1,958 & 1,466 & 1,642 & 1,833 & 2,041 & 2,268 \\ Finished Goods & 4,131 & 4,715 & 5,366 & 6,091 & 6,897 & 7,794 \\ Minimum Cash Balance & 5,880 & 6,680 & 7,564 & 8,542 & 9,621 & 10,812 \\ \hline Total Current Assets & 29,608 & 26,220 & 29,701 & 33,550 & 37,802 & 42,497 \\ Labilities & & & & & & \\ Wages Payable & 1,258 & 1,344 & 1,540 & 1,718 & 1,911 & 2,174 \\ Other Accounts Payable & 3,290 & 3,853 & 4,495 & 5,223 & 5,906 & 6,598 \\ Total Current Liabilties & 4,548 & 5,197 & 6,035 & 6,941 & 7,817 & 8,772 \\ Net Working Capital & 25,060 & 21,023 & 23,666 & 26,609 & 29,985 & 33,725 \\ Increase in Net Working Capital & & (4,037) & 2,643 & 2,943 & 3,376 & 3,740 \\ \hline \end{tabular} (Click on the following icon in order to copy its contents into a spreadsheet.) Data table (Click on the following icon D in order to copy its contents into a spreadsheet.) Forecast Ideko's free cash flow (reproduce Table 19.10 ), assuming Ideko's market share will increase by 0.60 percent per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital occur (that is, Ideko's working capital requirements through 2010 will be as shown here ). Ideko's pro-forma income statements for 2005-2010 are shown here , while its balance sheet for 2005 is shown here . Ideko's production plant will require an expansion in 2010 (when production volume will exceed the current level by 50% ), and the cost of this expansion will be $14.2 million. This amount will be borrowed from a financial institution at an interest rate of 6.8%. The new proiected capital investments a (Assume an income tax rate of 35%.)

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