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JetBlue IPO Valuation
Transcript of JetBlue IPO Valuation
Nathan Pfeiffer JetBlue IPO Valuation Introduction Valuation Sensitivity Analysis Alternative Scenarios Cost of Capital How a change in certain variables affect value: If IPO does not float at desired price: Initial Public Offering (IPO) At what price should JetBlue offer their shares? Discounted Cash Flow Valuation/Share Price Growth Rate Risk Free Rate Change in number of shares If IPO Does Not Float Withdraw
Decrease Quantity of shares Increase in shares decreases value per share
Decrease in shares increases value per share
Signals to investors:
Scare investors, reduce demand JetBlue Background Questions/Response Advantages/Disadvantages IPO Process Beta 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 Advantages
financial gain in raising the company's capital
more funding for research, debt, etc.
increase public awareness of the company
possible decision errors due to unsound analysis
cost associated with complying to regulations
switch from long-term focus to short-term usually takes about 3 months
prerequisites to fulfill before equity-issuance process
hold meeting to map & agree upon process
SEC reviews registration statement
surveying potential investors
negotiation of final offering price Cost of Debt Cost of Equity: CAPM Weights of Debt and Equity = 5.00%+1.1(5.00%)=10.50% $1,842/$17,913.99= 10.28% 1-.1028 = 89.72% WACC = 10.28%(.0425)(1-.385)+89.72%(.1050) = 9.8575%