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Question: Using the information produced in the income

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. Data from Problem 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 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.

Data from Problem 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.

Table 19.15:

Using this information, project net income through 2010. Table 19.15:
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.

Data from Problem 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.

Table 19.15:





Transcribed Image Text:

Year 2005 2006 2007 2008 2009 2010 Fixed Assets and Capital Investment ($ 000) 5,000 5,000 5,000 (5,450) 5,000 (5,365) 5,000 20,000 (5,328) (6,795) New Investment 3 Depreciation (5,500) (5,405) Continuation Value: Multiples Approach (S 000) 1 EBITDA in 2010 2 EBITDA multiple 3 Continuation Enterprise Value 4 Debt 5 Continuation Equity Value 32,094 9.1x 292,052 (120,000) Common Multiples EVISales P/E (levered) PIE (unlevered) 1.8x 16.3x 18.4x 172,052



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> You are watching the option quotes for your favorite stock, when suddenly there is a news announcement. Explain what type of news would lead to the following effects: a. Call prices increase, and put prices fall. b. Call prices fall, and put prices incre

> Consider the data for IBM options in Problem 3. Suppose a new American-style put option on IBM is issued with a strike price of $155 and an expiration date of November 1st. a. What is the maximum possible price for this option? b. What is the minimum pos

> Suppose Amazon stock is trading for $500 per share, and Amazon pays no dividends. a. What is the maximum possible price of a call option on Amazon? b. What is the maximum possible price of a put option on Amazon with a strike price of $550? c. What is th

> In mid-February 2016, European-style options on the S&P 100 index (OEX) expiring in December 2017 were priced as follows: Given an interest rate of 0.40% for a December 2017 maturity (22 months in the future), use put-call parity (with dividends) t

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> Consider the October 2015 IBM call and put options in Problem 3. Ignoring the negligible interest you might earn on T-bills over the remaining few days’ life of the options, show that there is no arbitrage opportunity using put-call parity for the option

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> Reproduce Ideko’s balance sheet and statement of cash flows, assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital occur (that

> Forecast Ideko’s free cash flow (reproduce Table 19.10), assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvement

> Forecast Ideko’s free cash flow (reproduce Table 19.10), assuming Ideko’s market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the projected improvement

> Under the assumptions that Ideko’s market share will increase by 0.5% per year but that the projected improvements in net working capital do not transpire (so the numbers in Table 19.8 remain at their 2005 levels through 2010), calculat

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> Under the assumptions that Ideko’s market share will increase by 0.5% per year and that the forecasts in Table 19.8 remain the same, calculate Ideko’s working capital requirements though 2010 (that is, reproduce Table

> 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 i

> 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 according

> 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 b

> Use your answers from Problems 17 and 18 to infer the value today of the projected improvements in working capital under the assumptions that Ideko’s market share will increase by 0.5% per year and that investment, financing, and depreciation will be adj

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> Using the APV method, estimate the value of Ideko and the NPV of the deal using the continuation value you calculated in Problem 13 and the unlevered cost of capital estimate in Section 19.4. Assume that the debt cost of capital is 6.8%; Ideko’s market s

> 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 sh

> 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 sh

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> RFC Corp. has announced a $1 dividend. If RFC’s price last price cum-dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)?

> When might it be advantageous to undertake a reverse stock split?

> Explain why most companies choose to pay stock dividends (split their stock).

> AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come o

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> Why is an announcement of a share repurchase considered a positive signal?

> Explain under which conditions an increase in the dividend payment can be interpreted as a signal of the following: a. Good news b. Bad news

> Use the data in Table 15.3 to calculate the tax disadvantage of retained cash in the following: a. 1998 b. 1976 Table 15.3: Personal Tax Rates Corporate Tax Rate Average Rate on Equity Income Year Interest Income Dividends Capital Gains 48% 35% 28%

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> Harris Corporation has $250 million in cash, and 100 million shares outstanding. Suppose the corporate tax rate is 35%, and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Harris to pay out the $250 million

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> Assume capital markets are perfect. Kay Industries currently has $100 million invested in short term Treasury securities paying 7%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Tr

2.99

See Answer