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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, $15.9 million, will be added to Ideko's debt in 2010. Ideko's balance sheet for 2005 is shown hereIdeko's free cash flows through 2010 are shown here

Ratio	Oakley, Inc.	Luxottica Group	Nike, Inc.	Sporting Goods Industry
P/E	24.9	28.1	18.2	20.4
EV/Sales	2.2	2.6	1.4	1.2
EV/EBITDA	11.8	14.3	9.1	11.4
EBITDA/Sales	16.9%	18.5%	15.7%	12.3%

Continuation Value: Multiples Approach ($ 000)

EBITDA in 2010

27498

EBITDA Multiple

9.1

x

Continuation Enterprise Value

250232

Debt

Continuation Equity Value

Income Statement ($ 000)	2005	2006	2007	2008	2009	2010
Sales	76,700	83,583	93,487	104,389	116,379	129,560
Cost of Goods Sold
Raw Materials	(16,000)	(17,352)	(19,217)	(21,248)	(23,455)	(25,857)
Direct Labor Costs	(18,000)	(20,510)	(23,378)	(26,604)	(30,225)	(34,293)
Gross Profit	42,700	45,721	50,892	56,537	62,699	69,410
Sales and Marketing	(11,250)	(13,566)	(16,435)	(19,761)	(22,438)	(24,979)
Administrative	(13,500)	(12,596)	(14,088)	(14,688)	(15,211)	(16,933)
EBITDA	17,950	19,559	20,369	22,088	25,050	27,498
Depreciation	(5,500)	(6,050)	(5,945)	(5,851)	(5,765)	(7,279)
EBIT	12,450	13,509	14,424	16,237	19,285	20,219
Interest Expense (net)	(75)	(6,530)	(6,530)	(6,530)	(6,530)	(6,530)
Pretax Income	12,375	6,979	7,894	9,707	12,755	13,689
Income Tax	(4,331)	(2,443)	(2,763)	(3,397)	(4,464)	(4,791)
Net Income	8,044	4,536	5,131	6,310	8,291	8,898

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

55,500

20,610

23,052

25,740

28,696

31,946

Raw Materials

1,973

2,139

2,369

2,620

2,892

3,188

Finished Goods

4,192

4,668

5,251

5,900

6,618

7,416

Minimum Cash Balance

6,304

6,870

7,684

8,580

9,565

10,649

Total Current Assets

67,969

34,287

38,356

42,840

47,771

53,199

Labilities

Wages Payable

1,295

1,361

1,540

1,697

1,867

2,105

Other Accounts Payable

3,360

3,812

4,395

5,056

5,658

6,267

Total Current Liabilities

4,655

5,173

5,935

6,753

7,525

8,372

Net Working Capital

63,314

29,114

32,421

36,087

40,246

44,827

Increase in Net Working Capital

(34,200)

3,307

3,666

4,159

4,581

Estimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents 6,164 Accounts Receivable 55,500 Inventories 6,165 Total Current Assets 67,829 Property, Plant, and Equipment 55,500 Goodwill 72,332 Total Assets 195,661 Liabilities and Stockholders' Equity Accounts Payable 4,654 Debt 100,000 Total Liabilities 104,654 Stockholders' Equity 91,007 Total Liabilities and Equity 195,661

Free Cash Flow ($ 000)

2005

2006

2007

2008

2009

2010

Net Income

4,536

5,131

6,310

8,291

8,898

Plus: After-tax Interest Expense

4,245

4,245

4,245

4,245

4,245

Unlevered Net Income

8,781

9,376

10,555

12,536

13,143

Plus: Depreciation

6,050

5,945

5,851

5,765

7,279

Less: Increase in NWC

34,200

(3,307)

(3,666)

(4,159)

(4,581)

Less: Capital Expenditures

(5,000)

(5,000)

(5,000)

(5,000)

(20,900)

Free Cash Flow of Firm

44,031

7,014

7,740

9,142

(5,059)

Plus: Net Borrowing

15,900

Less: After-tax Interest Expense

(4,245)

(4,245)

(4,245)

(4,245)

(4,245)

Free Cash Flow to Equity

39,786

2,769

3,495

3,495

6,596

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 9.1x. 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 exdansion in 2010, and that the cost of this expansion, $15.9 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 . (Click on the following,icon p. in order to copy its contents into a spreadsheet.) the continuation value you calculated. Also assume that Ideko's production plant will require an expansion in 2010, and that the cost of this expansi is balance sheet for 2005 is shown here . Ideko's free cash flows through 2010 are shown here (Click on the following icon D in order tc Calculate the continuation value in 2010 below: (Round the dollar amounts (Click on the following icon 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 55,500 Inventories Total Current Assets 6,165 Property, Plant, and Equipment \begin{tabular}{lr} Goodwill & 72,332 \\ \hline Total Assets & 195,661 \\ \hline \end{tabular} Liabilities and Stockholders' Equity. Accounts Payable 4,654 Debt Total Liabilities 104,654100,000 Stockholders' Equity 91,007 195,661 Continuation Value Estimate for Ideko 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 9.1x. 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 exdansion in 2010, and that the cost of this expansion, $15.9 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 . (Click on the following,icon p. in order to copy its contents into a spreadsheet.) the continuation value you calculated. Also assume that Ideko's production plant will require an expansion in 2010, and that the cost of this expansi is balance sheet for 2005 is shown here . Ideko's free cash flows through 2010 are shown here (Click on the following icon D in order tc Calculate the continuation value in 2010 below: (Round the dollar amounts (Click on the following icon 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 55,500 Inventories Total Current Assets 6,165 Property, Plant, and Equipment \begin{tabular}{lr} Goodwill & 72,332 \\ \hline Total Assets & 195,661 \\ \hline \end{tabular} Liabilities and Stockholders' Equity. Accounts Payable 4,654 Debt Total Liabilities 104,654100,000 Stockholders' Equity 91,007 195,661 Continuation Value Estimate for Ideko

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