Jetblue Ipo Analysis

1. What are the advantages and disadvantages to a firm going public? List at

least three of each.

A firm going public has many advantages one of those being that it’s a great source of financial gain from raising capital in the form of stock. This capital can be used to fund and expand the company. Another advantage the firm can gain is increased public awareness about the company and its product. One last advantage is that once a firm goes public it can often attract highly qualified employees through stock options, bonuses, or other incentives with a known market value. One of the different disadvantages a firm finds when going public is that it must now regulated by the SEC and must release financial statements to the public. Initial public offerings are very expensive and time consuming also raising capital publicly requires many fees and expenses. One last disadvantage is the public companies face added pressure from the market and investors, which can sometimes lead to management to shift to short-term results instead of long-term growth.

2. Using the data in Exhibit 7 on the back of this sheet answer the following questions, showing all calculations.

a. What are JetBlue’s five implied market prices based upon the P/E multiples of the five comparable airlines listed in Exhibit 7?

P/E Multiples: P/E= Price/Share / EPS AirTran- $32.58/$1.02 = 31.94x Alaska Air- $42.67/$1.03=41.47x America West- $20.89/$0.82= 25.47x

Midwest- $6.02/($0.44)= -13.91x Southwest- $21.28/$1.98= 10.47x

JetBlue’s Diluted EPS = $1.14

JetBlue’s five implied market prices found from the multiples above are:

AirTran - $1.14 x 31.94 = $36.41 Alaska Air-$1.14 x 41.47 = $47.28

America West- $1.14 x 25.47 = $29.04 Midwest- $1.14 x -13.91 = $-15.86

Southwest- $1.14 x 10.47 = $11.94

b. What are JetBlue’s five implied market prices based upon the CF (cash flow) multiples listed in Exhibit 7 for the five comparable airlines? Use the 2001 cash flow from Exhibit 3, and the number of outstanding shares immediately after the IPO, as given in Exhibit 1.

Cash Flow Multiples: CF Multiple= Price/Share / CF/Share

AirTran- $32.58/$1.46 = 22.32x Alaska Air- $42.67/$1.64=26.02x

America West- $20.89/$0.72= 29.01x Midwest- $6.02/($0.56)= -10.75x Southwest- $21.28/$0.84= 25.33x

JetBlue’s Cash Flow/ Share = 48954000/46078829 = $1.06

JetBlue’s five implied