Valuation and Financial Modeling:
A Case Study
19-1. You would like to compare Ideko’s profitability to its competitors’ profitability using the EBITDA/sales multiple. Given Ideko’s current sales of $75 million, use the information in Table 19.2 to compute a range of EBITDA for Ideko assuming it is run as profitably as its competitors.
Ideko’s 2005 sales are $75 million.
Find the highest and lowest EBITDA values across all three firms and the industry as a whole: EBITDA/Sales (%) EBITDA ($ mil)
Oakley 17.0 12.75
Luxcottica 18.5 13.875
Nike 15.9 11.925
Industry 12.1 9.075
This implies an EBITDA range of $9.075 to $13.875 million.
19-2. Assume that Ideko’s market share will increase by 0.5% per year rather than the 1% used in…show more content… 19-12. Calculate Ideko’s unlevered cost of capital when the market risk premium is 6% rather than 5%, the risk-free rate is 5% rather than 4%, and all other required estimates are the same as in the chapter.
19-13. Using the information produced in the income statement in Problem 4, use EBITDA as a multiple to estimate the continuation value in 2010, assuming the current value remains unchanged (reproduce Table 19.15). Infer the EV/sales and the unlevered and levered P/E ratios implied by the continuation value you calculated.
19-14. How does the assumption on future improvements in working capital affect your answer to Problem 13?
It does not affect the answer because the working capital savings do not affect EBITDA or debt levels.
19-15. Approximately what expected future long-run growth rate would provide the same EBITDA multiple in 2010 as Ideko has today (i.e., 9.1)? Assume that the future debt-to-value ratio is held constant at 40%; the debt cost of capital is 6.8%; Ideko’s market share will increase by 0.5% per year until 2010; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital occur (i.e., the assumptions in Problem 5).
19-16. Approximately what expected future long-run growth rate would provide the same EBITDA multiple in 2010 as Ideko has today (i.e., 9.1). Assume that the future debt-to-value ratio is held constant