Jet Blue Case Ipo

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Executive Summary
Going public’s main advantage is to provide liquidity and access to raise capital in the future, however, it can lead to problem in control of management and is expensive. There are Free Cash Flow techniques and relative valuation techniques that we can use to value Jetblue’s share, however we are going to use the Free Cash Flow technique for this case as this is an IPO and the company had no history whatsoever that we can rely on except by using its similar competitor statistics and assumptions to value Jetblue. In conclusion, we have calculated that using Free Cash Flow technique, the share price is $57 and therefore the current range of $25 to $27 is underpriced and that they should increase it to $56 to $58.
Case
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Items Assumptions
Depreciation Increase by 8 every year (average increase from previous years)
NOPAT Increase by 25 every year (near to average increase from previous years)
Capital Expenditure 120 every year (there is a decreasing trend from previous years
Change in NWC 30 (average change from previous years)
Using these assumptions, we produce the following results, 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
OCF 415 448 481 514 547 580 613 646 679 712
Change in NWC 30 30 30 30 30 30 30 30 30 30
Total Cash Flow to the Firm 265 298 331 364 397 430 463 496 529 562
Growth Rate 16.7 12.5 11.1 10 9.1 8.3 7.7 7.1 6.7 6.2
Average growth rate 6.50%

Therefore we are going to use 6.5% as the growth rate.
Discounted Cash Flow
Financial Forecast (Jetblue) 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E Terminal Value
Depreciation 18 26 36 45 54 65 75 83 90 Constant Growth
EBIT 80 134 181 226 274 326 375 410 443 6.5%
Taxes 27 46 62 77 93 111 127 139 151
NOPAT 53 89 120 149 181 215 247 270 292
Capital Expenditure 290 328 345 310 326 342 299 157 132
Net Working Capital 63 94 126 157 191 227 261 285 308 OCF 71 115 156 194 235 280 322 353 382
Change in NWC 29 31 32 31 34 36 34 24 23
Total Cash Flow to the Firm -248 -244 -221 -147 -125 -98 -11 172

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