KEY QUESTIONS FOR CONISDERATION
1) What are the advantages and disadvantages of going public?
2) What different approaches can be used to value JetBlue’s shares?
3) At what price would you recommend that JetBlue offer their shares?
Potential Questions to be addressed in report submission * What is an Initial Public Offering and why is it such a big deal? * Is going public, particularly at the time they did, a good idea for JetBlue? * What do you …show more content…
And IPO market is never dead for good company with real revenues and real earnings just like JetBlue. It then turned out that it was a suitable time for JetBlue to IPO during the economic downturn though.
JetBlue’s shares valuation
There are various methods to value shares for a company, including free cash flow to equity (FCFE) method discounted by WACC, free cash flow to firm (FCFF) method discounted by cost of equity, dividend discount model and relative valuation techniques. Since JetBlue had not paid out any dividends on common stock, dividend discount model cannot be used to estimate company share value. In addition, FCFF method do not consider the effect of interest payment, however, as mentioned in the case, the Federal Reserve had attempted to stimulate economic activity by reducing interest rates. Therefore, from my point of view, it was more appropriate to value JetBlue share by FCFE method to consider the consequences of interest rate.
The assumptions are made for evaluate JetBlue share value as follows. The long-run growth rate was expected to be 7% annually. And the company would have survived and would be a typical firm with an estimated cost of equity of 15% in 2010. Last but not least, the appropriate discount rate was assumed to be 30%. Additionally, there was a quite weird number disappeared in the Exhibit 13, which was the expected inflation rate