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Module 3: Market Multiple Valuation Regional Airlines - jetBlue

Module 3: Market Multiple Valuation Regional Airlines - jetBlue. Michelle Kelly. Inputs. Inputs Chosen. Lowered growth rate to create a more conservative estimate and to better reflect market conditions Use perpetuity growth rate of 2.5%

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Module 3: Market Multiple Valuation Regional Airlines - jetBlue

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  1. Module 3: Market Multiple ValuationRegional Airlines - jetBlue Michelle Kelly

  2. Inputs

  3. Inputs Chosen • Lowered growth rate to create a more conservative estimate and to better reflect market conditions • Use perpetuity growth rate of 2.5% • EPM increases to reflect higher operating margins gotten from implementation of newer aircrafts • EATO is increased to reflect the trend exhibited over the last three years.

  4. Abnormal Growth Model • Mathematically Equivalent to FCF and REI Models • Calculates the value of the firm based on the difference between actual and expected earnings • Expected earnings are calculated based off prior year EPAT • agr = [EPATt+(rent*FCFt-1)] – [(1+rent)*EPATT-1] • Enterprise Value = EPAT+ sum of the present values of agr+ agrperpetuity.

  5. Abnormal Growth (WACC 7%)

  6. Discussion • Enterprise Value of the Firm per the Balance Sheet is $5,047. • Hold NEA constant in 2014because estimation of EATO caused a decrease, which is unlikely to occur

  7. FCF Analysis

  8. Residual Value

  9. Comparison of Different Models

  10. Questions?

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