Questions/Response
Alternative Scenarios
If IPO does not float at desired price:
If IPO Does Not Float
- Withdraw
- Delay
- Decrease Price
- Decrease Quantity of shares
Change in number of shares
- Increase in shares decreases value per share
- Decrease in shares increases value per share
- Signals to investors:
- Asymmetric information
- Meek outlook
- Scare investors, reduce demand
Risk Free Rate
Sensitivity Analysis
How a change in certain variables affect value:
Growth Rate
JetBlue IPO Valuation
Valuation
Discounted Cash Flow
Weights of Debt and Equity
$1,842/$17,913.99= 10.28%
= 5.00%+1.1(5.00%)=10.50%
WACC = 10.28%(.0425)(1-.385)+89.72%(.1050) = 9.8575%
Valuation/Share Price
Introduction
Presented By
Alexandra DiMercurio
Jennifer Heath
Tara Luke
Nathan Pfeiffer
JetBlue Background
Initial Public Offering (IPO)
- Founded in 1999 by David Neeleman
- 1999: $4 billion order for 75 A320 aircraft
- 2000: One-millionth customer and first $100 million
- 2001: Expand services and launches
- 2002: Announces IPO
- usually takes about 3 months
- prerequisites to fulfill before equity-issuance process
- hold meeting to map & agree upon process
- "quiet period"
- SEC reviews registration statement
- surveying potential investors
- negotiation of final offering price
- Advantages
- financial gain in raising the company's capital
- more funding for research, debt, etc.
- increase public awareness of the company
- Disadvantages
- possible decision errors due to unsound analysis
- heavily regulated
- cost associated with complying to regulations
- switch from long-term focus to short-term
At what price should JetBlue offer their shares?