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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

Beta

JetBlue IPO Valuation

Valuation

Discounted Cash Flow

Weights of Debt and Equity

$1,842/$17,913.99= 10.28%

1-.1028 = 89.72%

Cost of Capital

Cost of Equity: CAPM

= 5.00%+1.1(5.00%)=10.50%

Cost of Debt

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

IPO Process

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/Disadvantages

  • 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?

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