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

Accepted Answer

B)After-Tax interest expense = interest expense(1 - T_c)= 8160(1 - .35)= 5304 Note T_c = income tax/pre-tax income = 5678/16,223 = 35% FCF_firm = NI + after tax interest + Depreciation - ΔNWC - capital expenditures FCF_firm = 10,545 + 5304 + 15,848 - 7710 - 8000 = 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?

Accepted Answer

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?

Accepted Answer

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

Accepted Answer

C)After-Tax interest expense = interest expense(1 - T_c)= 8160(1 - .35)= 5304 Note T_c = income tax/pre-tax income = 5678/16,223 = 35%

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

Accepted Answer

B)Average EV/Sales = 11ea7cce_3c90_a1fc_928c_43f000162722_TB1626_11 = 2.07
EV = EV/Sales × Sales = 2.07 × $75 million = $155.25

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?

Accepted Answer

The answer of What range for the market value of...

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

Accepted Answer

A)Average EV/EBITDA = 11ea7cce_3c90_c90e_928c_3b7967abd56c_TB1626_11 = 11.77
EV = EV/EBITDA × EBITDA = 11.77 × $16.25 million = $191.26 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

Accepted Answer

D)Production volume each year can be estimated by multiplying the total market size and Ideko's market share from the table above: 11ea7cce_3c91_d984_928c_9bb8a2ddfaee_TB1626_00

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

Accepted Answer

B)Average EV/Sales = 11ea7cce_3c90_a1fd_928c_1fd9328f444a_TB1626_11 = 2.07
EV = EV/Sales + Sales = 2.07 × $75 million = $155.25
EV = Equity + Debt - Cash in excess of NWC needs
Equity = EV - Debt + cash in excess of NWC needs = $155.25 - $4.5 + $6.5 = $157.25 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

Accepted Answer

A)After-Tax interest expense = interest expense(1 - T_c)= 8160(1 - .35)= 5304 Note T_c = income tax/pre-tax income = 5678/16,223 = 35% FCF_firm = NI + after tax interest + Depreciation - ΔNWC - capital expenditures FCF_firm = 10,545 + 5304 + 15,848 - 7710 - 8000 = 11,559 FCF_equity = FCF_firm + Net borrowing - after tax interest expense FCF_equity =11,559 + 0 - 5304 = 6255

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

Accepted Answer

C)Interest_t = Interest rate × ending balance_t-1 = .068 × 115,000 = $7820

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

Accepted Answer

C)Accounts Receivable Days = 11ea7cce_3c92_0096_928c_d7e39cd4752b_TB1626_11 × 365 = 90 days

Question 13

The free cash flow to equity in 2008 is closest to:
A)-5005
B)-1755
C)5575
D)9995

Accepted Answer

C)After-Tax interest expense = interest expense(1 - T_c)= 6800(1 - .35)= 4420 Note T_c = income tax/pre-tax income = 3748/10,708 = 35% FCF_firm = NI + after tax interest + Depreciation - ΔNWC - capital expenditures FCF_firm = 6960 + 4420 + 6865 - 3250 - 20,000 = -5005 FCF_equity = FCF_firm + Net borrowing - after tax interest expense FCF_equity = -5005 + 15,000 - 4420 = 5575

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

Accepted Answer

A)Interest_t = Interest rate × ending balance_t-1 = .068 × 100,000 = $6800

Question 15

The free cash flow to the firm in 2008 is closest to:
A)-5005
B)-1755
C)5575
D)14,995

Accepted Answer

A)After-Tax interest expense = interest expense(1 - T_c)= 6800(1 - .35)= 4420 Note T_c = income tax/pre-tax income = 3748/10,708 = 35% FCF_firm = NI + after tax interest + Depreciation - ΔNWC - capital expenditures FCF_firm = 6960 + 4420 + 6865 - 3250 - 20,000 = -5005

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

Accepted Answer

C)Production volume each year can be estimated by multiplying the total market size and Ideko's market share from the table above: 11ea7cce_3c91_b273_928c_8b11cba19220_TB1626_00

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

Accepted Answer

D)Average P/E = 11ea7cce_3c90_7aeb_928c_e5a95b46339d_TB1626_00 = 23.67
Price = earnings × P/E = 6.939 × 23.67 = $164.22 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

Accepted Answer

D)Average EV/EBITDA = 11ea7cce_3c90_f01f_928c_05c69dddb4d1_TB1626_11 = 11.77
EV = EV/EBITDA × EBITDA = 11.77 × $16.25 million = $191.26 million
EV = Equity + Debt - Cash in excess of NWC needs
Equity = EV - Debt + cash in excess of NWC needs = $191.26 - $4.5 + $6.5 = $193.26 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

Accepted Answer

B)Production volume each year can be estimated by multiplying the total market size and Ideko's market share from the table above: 11ea7cce_3c91_8b62_928c_952ab7ebaa84_TB1626_00

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

Accepted Answer

B)After-Tax interest expense = interest expense(1 - T_c)= 6800(1 - .35)= 4420 Note T_c = income tax/pre-tax income = 3748/10,708 = 35%

Quiz 19: Valuation and Financial Modeling: a Case Study

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

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

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?

The after tax interest expense in 2010 is closest to:

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

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?

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

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

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:

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

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

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:

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

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:

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

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

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:

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:

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?

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