BD3 SM19 GE 1 
Chapter 19
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 the chapter. What production capacity will Ideko require each year? When will an expansion become necessary (when production volume will exceed the current level by 50%)?
First compute the projected annual market share:
Using these projections, calculate the projected annual production volume:
Based on these estimates, it will be 2010 before current capacity is exceeded and an expansion becomes necessary.
19-3. Under the assumption that Ideko market share will increase by 0.5% per year, you determine that the plant will require an expansion in 2010. The cost of this expansion will be $15 million. Assuming the financing of the expansion will be delayed accordingly, calculate the projected interest payments and the amount of the projected interest tax shields (assuming that the interest rates on the term loans remain the same as in the chapter) through 2010.
19-4. Under the assumption that Ideko’s market share will increase by 0.5% per year (and the investment and financing will be adjusted as described in Problem 3), you project the following depreciation:
Using this information, project net income through 2010 (that is, reproduce Table 19.7 under the new assumptions).
19-5. Under the assumptions that Ideko’s market share will
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 the chapter. What production capacity will Ideko require each year? When will an expansion become necessary (when production volume will exceed the current level by 50%)?
First compute the projected annual market share:
Using these projections, calculate the projected annual production volume:
Based on these estimates, it will be 2010 before current capacity is exceeded and an expansion becomes necessary.
19-3. Under the assumption that Ideko market share will increase by 0.5% per year, you determine that the plant will require an expansion in 2010. The cost of this expansion will be $15 million. Assuming the financing of the expansion will be delayed accordingly, calculate the projected interest payments and the amount of the projected interest tax shields (assuming that the interest rates on the term loans remain the same as in the chapter) through 2010.
19-4. Under the assumption that Ideko’s market share will increase by 0.5% per year (and the investment and financing will be adjusted as described in Problem 3), you project the following depreciation:
Using this information, project net income through 2010 (that is, reproduce Table 19.7 under the new assumptions).
19-5. Under the assumptions that Ideko’s market share will