Deck 19: Valuation and Financial Modeling: a Case Study

Question 1

The free cash flow to the firm in 2010 is closest to:

A)10,684
B)11,559
C)23,698
D)26,394

Answer 1

11,559

Question 2

What range for the market value of equity for Ideko is implied by the range of P/E multiples for the comparable firms?

Answer 2

Low P/E (Nike)= 18.2
Low Price = earnings × P/E = 6.939 × 18.2 = $126.29 million
High P/E (Luxottica Group)= 28.0
High Price = earnings × P/E = 6.939 × 28.0 = $194.29 million

Question 3

What range for the market value of equity for Ideko is implied by the range of EV/Sales multiples for the comparable firms if Ideko holds $6.5 million of cash in excess of its working capital needs?

Answer 3

Low EV/Sales (Nike)= 1.5
Low EV = Sales × EV/Sales = $75 million × 1.5 = $112.50 million
Low EV = Equity + Debt - Cash in excess of NWC needs
Low Equity Price = EV - Debt + cash in excess of NWC needs = $112.50 - $4.5 + $6.5 = $114.50 million
High EV/Sales (Luxottica)= 2.7
High EV = Sales × EV/Sales = $75 million × 2.7 = $202.50 million
High EV = Equity + Debt - Cash in excess of NWC needs
High Equity Price = EV - Debt + cash in excess of NWC needs = $202.50 - $4.5 + $6.5 = $204.50 million

Question 4

The after tax interest expense in 2010 is closest to:

A)0
B)2856
C)5304
D)8160

Question 5

Based upon the average EV/Sales ratio of the comparable firms,Ideko's target economic value is closest to:

A)$191 million
B)$155 million
C)$165 million
D)$157 million

Question 6

What range for the market value of equity for Ideko is implied by the range of EV/EBITDA multiples for the comparable firms if Ideko holds $6.5 million of cash in excess of its working capital needs?

Question 7

Based upon the average EV/EBITDA ratio of the comparable firms,Ideko's target economic value is closest to:

A)$191 million
B)$155 million
C)$157 million
D)$193 million

Question 8

Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2009?

A)1505 units
B)1115 units
C)1323 units
D)1702 units

Question 9

Based upon the average EV/Sales ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:

A)$165 million
B)$157 million
C)$193 million
D)$191 million

Question 10

The free cash flow to equity in 2010 is closest to:

A)6255
B)10,684
C)11,559
D)18,394

Question 11

If Ideko's loans will have an interest rate of 6.8%,then the interest expense paid in 2009 is closest to:

A)$6800
B)$7310
C)$7820
D)$7990

Question 12

Use the tables for the question(s)below.
Estimated 2005 Income Statement and Balance Sheet Data for Ideko Corporation
Ideko's Accounts Receivable Days is closest to:

A)84 days
B)95 days
C)90 days
D)75 days

Question 13

The free cash flow to equity in 2008 is closest to:

A)-5005
B)-1755
C)5575
D)9995

Question 14

Use the following information to answer the question(s)below:
Ideko's Planned Debt
If Ideko's loans will have an interest rate of 6.8%,then the interest expense paid in 2008 is closest to:

A)$6800
B)$7310
C)$7820
D)$7990

Question 15

The free cash flow to the firm in 2008 is closest to:

A)-5005
B)-1755
C)5575
D)14,995

Question 16

Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2008?

A)1702 units
B)1323 units
C)1505 units
D)1914 units

Question 17

Use the tables for the question(s)below.
Estimated 2005 Income Statement and Balance Sheet Data for Ideko Corporation The following are financial ratios for three comparable companies:
Based upon the average P/E ratio of the comparable firms,Ideko's target market value of equity is closest to:

A)$157 million
B)$155 million
C)$193 million
D)$165 million

Question 18

Based upon the average EV/EBITDA ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:

A)$155 million
B)$157 million
C)$165 million
D)$193 million

Question 19

Use the table for the question(s)below.
Ideko Sales and Operating Cost Assumptions
Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2007?

A)1505 units
B)1323 units
C)1914 units
D)1115 units

Question 20

Use the following information to answer the question(s)below:
The after tax interest expense in 2008 is closest to:

A)2380
B)4420
C)6800
D)7820

Question 21

The amount of the increase in net working capital for Ideko in 2008 is closest to:

A)$4685
B)$3665
C)$4090
D)$5230

Question 22

If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Luxottica is closest to:

A)10.2%
B)13.5%
C)9.1%
D)14.7%

Question 23

If Ideko's future expected growth rate is 5% and its WACC is 9%,then the continuation value in 2010 is closest to:

A)164,200
B)278,775
C)280,450
D)303,425

Question 24

The amount of net working capital for Ideko in 2007 is closest to:

A)$30,510
B)$26,420
C)$22,170
D)$35,195

Question 25

The amount of net working capital for Ideko in 2008 is closest to:

A)$35,195
B)$26,420
C)$22,170
D)$30,510

Question 26

If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Oakley is closest to:

A)13.5%
B)10.2%
C)9.1%
D)14.7%

Question 27

The amount of net working capital for Ideko in 2006 is closest to:

A)$22,750
B)$35,195
C)$30,510
D)$26,420

Question 28

Using the income statement above and the following information:

Calculate Ideko's Free Cash Flow to the Firm and Free Cash Flow to Equity in 2007.

Question 29

Using the income statement above and the following information:

Calculate Ideko's Free Cash Flow to the Firm and Free Cash Flow to Equity in 2009.

Question 30

The amount of the increase in net working capital for Ideko in 2007 is closest to:

A)$4090
B)$4685
C)$3665
D)$5230

Question 31

With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2007 is closest to:

A)$14,525
B)$16,970
C)$22,710
D)$19,690

Question 32

If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Nike is closest to:

A)14.7%
B)10.2%
C)9.1%
D)13.5%

Question 33

The unlevered beta for Luxottica is closest to:

A)1.00
B)0.60
C)0.70
D)1.50

Question 34

Use the table for the question(s)below.
Pro Forma Income Statement for Ideko,2005-2010
With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2006 is closest to:

A)$19,690
B)$16,970
C)$22,710
D)$14,525

Question 35

Use the following information to answer the question(s)below:
If Ideko's future expected growth rate is 5%,then the estimated free cash flow for 2011 is closest to:

A)6568
B)11,151
C)11,218
D)12,137

Question 36

Use the table for the question(s)below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms
The unlevered beta for Oakley is closest to:

A)0.70
B)1.50
C)1.00
D)0.60

Question 37

The unlevered beta for Nike is closest to:

A)0.70
B)1.00
C)1.50
D)0.60

Question 38

With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2008 is closest to:

A)$14,525
B)$19,690
C)$22,710
D)$16,970

Question 39

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko,2005-2010 Pro Forma Balance Sheet for Ideko,2005-2010
Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation enterprise value of Ideko in 2010 is closest to:

A)$152.8 million
B)$272.8 million
C)$301.7 million
D)$181.7 million

Question 40

Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation equity value of Ideko in 2010 is closest to:

A)$181.7 million
B)$272.8 million
C)$152.8 million
D)$301.7 million

Question 41

What is the purpose of the sensitivity analysis?

Question 42

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation enterprise value of Ideko in 2010 is closest to:

A)$181.7 million
B)$152.8 million
C)$272.8 million
D)$301.7 million

Question 43

Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation EV/Sales ratio of Ideko in 2010 is closest to:

A)1.7
B)1.9
C)1.6
D)1.8

Question 44

Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

A)17.6
B)16.4
C)14.5
D)19.0

Question 45

Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

A)19.0
B)17.2
C)16.4
D)14.5

Question 46

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

A)17.2
B)16.4
C)14.5
D)19.4

Question 47

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation equity value of Ideko in 2010 is closest to:

A)$152.8 million
B)$181.7 million
C)$301.7 million
D)$272.8 million

Question 48

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation EV/Sales ratio of Ideko in 2010 is closest to:

A)1.9
B)1.7
C)1.6
D)1.8

Question 49

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

A)17.2
B)14.5
C)19.0
D)16.4