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Given the information in the projected income statements Buse 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 expansion in 2010, and that the cost of this expansion, $14.4 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 B. (Click on the following icon in order to copy its contents into a spreadsheet.) Ideko Financial Ratios Comparison, Mid-2005 Luxottica Sporting Ratio Oakley, Inc. Group Nike, Inc. Goods Industry PIE 24.6 27.8* 18.2x 20.1 EV/Sales 2.1 x 2.7% 1.7x 1.3 EVEBITDA 11.5% 14.2 9.2x 11.4* EBITDA/Sales 17.1% 18.6% 15.7% 11.9% --- 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 Continuation Enterprise Value Debt Continuation Equity Value Income Statement ($ 000) 2005 2006 2007 2008 2009 2010 Sales 76,200 79,387 89,135 99,872 111,689 124,685 Cost of Goods Sold Raw Materials (18,425) (24,950) (16,000) (18,000) (16,589) (19,954) 42,844 (20,422) (26,122) (22,594) (29,801) Direct Labor Costs (33,936) (22,855) 47,855 Gross Profit 42,200 59,294 65,799 Sales and Marketing (11,250) (13,500) (25,398) (13,274) (12,059) 53,328 (19,795) (14,172) (16,285) (13,540) (22,751) (14,732) Administrative (16,446) EBITDA 17,511 18,030 19,361 21,811 23,955 17,450 (5,500) Depreciation (5,890) (5,796) (5,711) (5,635) (7,007) EBIT 11,950 11,621 12,234 13,650 16,176 16,948 Interest Expense (net) (75) (6,860) (6,860) (6,860) (6,860) (6,860) Pretax Income 11,875 4,761 5,374 6,790 10,088 9,316 (3,261) Income Tax (4,156) (1,666) (1,881) (2,377) (3,531) Net Income 7,719 3,095 3,493 4,413 6,055 6,557 TABLE 19.15 SPREADSHEET Continuation Value Estimate for ldeko Continuation Value: Multiples Approach ($ 000) 1 EBITDA in 2010 32,094 2 EBITDA multiple 9.1 x 3 Continuation Enterprise Value 292,052 4 Debt (120,000) 5 Continuation Equity Value 172,052 Common Multiples EV/Sales P/E (levered) P/E (unlevered) 1.8% 16.3x 18.4x Estimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents 6,164 Accounts Receivable 18,789 Inventories Total Current Assets 31,118 Property, Plant, and Equipment 53,950 Goodwill 72,332 Total Assets 157,400 6,165 Liabilities and Stockholders' Equity Accounts Payable Debt Total Liabilities Stockholders' Equity Total Liabilities and Equity 4,654 100,000 104,654 52,746 157,400 Free Cash Flow ($ 000) 2005 2006 2007 2008 2009 2010 Net Income 3,095 3,493 4,413 6,055 6,557 Plus: After-tax Interest Expense 4,459 4,459 4,459 4,459 4,459 Unlevered Net Income 7,554 7,952 8,872 10,514 11,016 Plus: Depreciation 5,890 5,796 5,711 5,635 7,007 Less: Increase in NWC (1,090) (3,238) (3,587) (4,069) (4,950) (4,505) (19,350) Less: Capital Expenditures (4,950) (4,950) (4,950) Free Cash Flow of Firm 7,404 5,560 6,046 7,130 (5,832) Plus: Net Borrowing 14,400 Less: After-tax Interest Expense (4,459) (4,459) (4,459) (4,459) (4,459) Free Cash Flow to Equity 2,945 1,101 1,587 1,587 4,109 Given the information in the projected income statements Buse 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 expansion in 2010, and that the cost of this expansion, $14.4 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 B. (Click on the following icon in order to copy its contents into a spreadsheet.) Ideko Financial Ratios Comparison, Mid-2005 Luxottica Sporting Ratio Oakley, Inc. Group Nike, Inc. Goods Industry PIE 24.6 27.8* 18.2x 20.1 EV/Sales 2.1 x 2.7% 1.7x 1.3 EVEBITDA 11.5% 14.2 9.2x 11.4* EBITDA/Sales 17.1% 18.6% 15.7% 11.9% --- 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 Continuation Enterprise Value Debt Continuation Equity Value Income Statement ($ 000) 2005 2006 2007 2008 2009 2010 Sales 76,200 79,387 89,135 99,872 111,689 124,685 Cost of Goods Sold Raw Materials (18,425) (24,950) (16,000) (18,000) (16,589) (19,954) 42,844 (20,422) (26,122) (22,594) (29,801) Direct Labor Costs (33,936) (22,855) 47,855 Gross Profit 42,200 59,294 65,799 Sales and Marketing (11,250) (13,500) (25,398) (13,274) (12,059) 53,328 (19,795) (14,172) (16,285) (13,540) (22,751) (14,732) Administrative (16,446) EBITDA 17,511 18,030 19,361 21,811 23,955 17,450 (5,500) Depreciation (5,890) (5,796) (5,711) (5,635) (7,007) EBIT 11,950 11,621 12,234 13,650 16,176 16,948 Interest Expense (net) (75) (6,860) (6,860) (6,860) (6,860) (6,860) Pretax Income 11,875 4,761 5,374 6,790 10,088 9,316 (3,261) Income Tax (4,156) (1,666) (1,881) (2,377) (3,531) Net Income 7,719 3,095 3,493 4,413 6,055 6,557 TABLE 19.15 SPREADSHEET Continuation Value Estimate for ldeko Continuation Value: Multiples Approach ($ 000) 1 EBITDA in 2010 32,094 2 EBITDA multiple 9.1 x 3 Continuation Enterprise Value 292,052 4 Debt (120,000) 5 Continuation Equity Value 172,052 Common Multiples EV/Sales P/E (levered) P/E (unlevered) 1.8% 16.3x 18.4x Estimated 2005 Balance Sheet Data for Ideko Corporation Balance Sheet ($ 000) Assets Cash and Equivalents 6,164 Accounts Receivable 18,789 Inventories Total Current Assets 31,118 Property, Plant, and Equipment 53,950 Goodwill 72,332 Total Assets 157,400 6,165 Liabilities and Stockholders' Equity Accounts Payable Debt Total Liabilities Stockholders' Equity Total Liabilities and Equity 4,654 100,000 104,654 52,746 157,400 Free Cash Flow ($ 000) 2005 2006 2007 2008 2009 2010 Net Income 3,095 3,493 4,413 6,055 6,557 Plus: After-tax Interest Expense 4,459 4,459 4,459 4,459 4,459 Unlevered Net Income 7,554 7,952 8,872 10,514 11,016 Plus: Depreciation 5,890 5,796 5,711 5,635 7,007 Less: Increase in NWC (1,090) (3,238) (3,587) (4,069) (4,950) (4,505) (19,350) Less: Capital Expenditures (4,950) (4,950) (4,950) Free Cash Flow of Firm 7,404 5,560 6,046 7,130 (5,832) Plus: Net Borrowing 14,400 Less: After-tax Interest Expense (4,459) (4,459) (4,459) (4,459) (4,459) Free Cash Flow to Equity 2,945 1,101 1,587 1,587 4,109

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