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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 x. 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, $15.0 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 . Ratio P/E EV/Sales EV/EBITDA EBITDA/Sales Ideko Financial Ratios Comparison, Mid-2005 Luxottica Oakley, Inc. Group Nike, Inc. 24.8x 28.0x 18.2x 2.0x 2.7 1.5x 11.6% 14.4x 9.3x 17.0% 18.5% 15.9% Sporting Goods Industry 20.3x 1.4x 11.4x 12.1% Calculate the continuation value in 2010 below: (Round the dollar amounts to the nearest $ 000.) Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 EBITDA Multiple X Continuation Enterprise Value Debt Continuation Equity Value The EV/sales multiple is (Round to one decimal place.) The unlevered P/E ratio is 1. (Round to one decimal place.) The levered P/E ratio is (Round to one decimal place.) Estimated 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 6,164 18,493 6,165 30,822 49,500 72,332 152,654 Liabilities and Stockholders' Equity Accounts Payable Debt Total Liabilities Stockholders' Equity Total Liabilities and Equity 4,654 100,000 104,654 48,000 152,654 Free Cash Flow ($ 000) 2005 2006 2007 2008 2009 2010 Net Income 4,595 5,063 6,106 7,936 8,546 Plus: After-tax Interest Expense 4,420 4,420 4,420 4,420 4,420 Unlevered Net Income 9,015 9,483 10,526 12,356 12,966 Plus: Depreciation 5,450 5,405 5,365 5,328 6,795 Less: Increase in NWC (3,218) (5,000) (3,424) (5,000) (3,791) (5,000) (4,297) (5,000) Less: Capital Expenditures Free Cash Flow of Firm 6,247 6,464 7,100 8,387 (4,751) (20,000) (4,990) 15,000 (4,420) Plus: Net Borrowing Less: After-tax Interest Expense (4,420) (4,420) (4,420) (4,420) Free Cash Flow to Equity 1,827 2,044 2,680 2,680 5,590 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 x. 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, $15.0 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 . Ratio P/E EV/Sales EV/EBITDA EBITDA/Sales Ideko Financial Ratios Comparison, Mid-2005 Luxottica Oakley, Inc. Group Nike, Inc. 24.8x 28.0x 18.2x 2.0x 2.7 1.5x 11.6% 14.4x 9.3x 17.0% 18.5% 15.9% Sporting Goods Industry 20.3x 1.4x 11.4x 12.1% Calculate the continuation value in 2010 below: (Round the dollar amounts to the nearest $ 000.) Continuation Value: Multiples Approach ($ 000) EBITDA in 2010 EBITDA Multiple X Continuation Enterprise Value Debt Continuation Equity Value The EV/sales multiple is (Round to one decimal place.) The unlevered P/E ratio is 1. (Round to one decimal place.) The levered P/E ratio is (Round to one decimal place.) Estimated 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 6,164 18,493 6,165 30,822 49,500 72,332 152,654 Liabilities and Stockholders' Equity Accounts Payable Debt Total Liabilities Stockholders' Equity Total Liabilities and Equity 4,654 100,000 104,654 48,000 152,654 Free Cash Flow ($ 000) 2005 2006 2007 2008 2009 2010 Net Income 4,595 5,063 6,106 7,936 8,546 Plus: After-tax Interest Expense 4,420 4,420 4,420 4,420 4,420 Unlevered Net Income 9,015 9,483 10,526 12,356 12,966 Plus: Depreciation 5,450 5,405 5,365 5,328 6,795 Less: Increase in NWC (3,218) (5,000) (3,424) (5,000) (3,791) (5,000) (4,297) (5,000) Less: Capital Expenditures Free Cash Flow of Firm 6,247 6,464 7,100 8,387 (4,751) (20,000) (4,990) 15,000 (4,420) Plus: Net Borrowing Less: After-tax Interest Expense (4,420) (4,420) (4,420) (4,420) Free Cash Flow to Equity 1,827 2,044 2,680 2,680 5,590

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