Initial Public Offering is the first sale of stock by a private company to the public. The private company as an issuer entrusts an underwriter firm or a group of firms who help the issuer going public. IPOs are such a big deal because any investors who hold stock at initial offering price would make a significant capital gain when the company goes public. Numerous cases of new issues have proved that investors rise in value.…
JetBlue was started in 1999 by David Neeleman, whose vision is to give high-quality and reliable flying experience in a budget airline. Through sophisticated technology, brand new aircrafts, impeccable customer service and low fares, JetBlue was on its way to achieve this vision. Although the low-fare travel industry was gaining momentum, the September 11 attack brought a massive downturn to the already-risky airline industry. However, JetBlue was still able to deliver good performance despite the circumstances. It offered the lowest cost per available-seat-mile of any major US airlines. In order to support JetBlue’s growth plan and offset portfolio losses by its venture-capital investors, JetBlue wished to raise capital through initial public offering (IPO). The purpose of this report is to determine the appropriate JetBlue’s IPO price given the available data.…
The estimation of cost of capital for JetBlue proved to be a difficult process. Considering the company has an unfavorable capital structure, due to the fact that they are acquiring a large number of aircrafts, simply taking the weights of debt and equity are not acceptable. In order to accurately judge the discount rate the multiples method is necessary. The comparison was to a leading low-fare airline company, Southwest. Another critical point is that taking the book values as compared to the market values is not an accurate depiction of what the market is willing to pay. There are several components that came into play with calculating the WACC. Necessary components included: weights of debt and equity, cost of debt and equity, and the tax rate.…
JetBlue Airlines, a low-fare commercial airline, has planned to go public towards the end of 2001. During the process the firm had restructured their initial price from $22- 24 per share to $26 – 28 per share.…
JetBlue is a company that was founded on not accepting the status quo with regard to how airline travel is “supposed to be”. Recent history shows that low-fare airlines are gaining momentum, and JetBlue’s business model sets us apart- our fleet is newer, more reliable and efficient. We offer the lowest cost per available seat mile than any other U.S. airline, and we do it while maintaining high quality, customer- focused service. By raising equity through a public offering, JetBlue has the opportunity to support the current growth trajectory and offset portfolio losses, thus putting us in an advantageous position for future development. The following report details some of the advantages of going public as well as the potential pitfalls, while outlining a price per share approach based on terminal value and market multiples. Finally, it discusses the ramifications of setting a price under the expected market price and ultimately suggests a potential IPO price.…
Initial Public Offering is a kind of public offering where a company sold shares of stock to the general public, on a securities exchange for the first time. Companies use initial public offerings to drive expansion capital up in order to make profits from the investment of early private investors possibly and to become as publicly traded enterprises. Shares are sold by a company without a requirement of repaying the capital to its public investors. After the IPO, money passes between investors while shares are free trading in the open market. For businesses, stocks and shares are a quick method to increase revenue for expansion and growth of company. Going to public will make company become publicly traded and benefit from new, larger opportunities then is able to work towards incorporations and even worldwide expansion. IPO makes company access to public capital fast and as well as a relative low risk for business and have the potential chance for huge gains. More investors wish to invest in company will lead to the more company stands to or from IPOs and other stock offerings. For the investor, IPO is attractive due to it might be undervalued. At the first, many companies will provide their IPO rates at a very low level in order to attractive investors. It encourages investors to buy IPOs and make a statement that the new or newly public company will make a huge profit margin. Since prices up and demand for the IPOs increases, early investors stand to earn profits very quickly.…
David Neeleman, CEO of JetBlue Airways and his management team have realized that JetBlue is still making profit despite the many challenges facing the airline industry after the September 11th 2001 terrorist attacks. Despite these positive returns; JetBlue plans on raising capital through an Initial Public Offering (IPO) to support its aggressive growth and to also offset portfolio losses to their venture capital investors. This is a simple, theoretical, but very involving task , however the main challenge is to determine the right offer price for JetBlue Airways. The lead underwriter and management of JetBlue had initially concluded that price will range from $22 to $24, but realize that this will lead to an oversubscription, so the management of JetBlue has raised it to the range of $25 to $26.…
As a leader of airways industries, JetBlue is successful because of professional services and a good management team. In 2002, JetBlue became a public company. Despite the fact that US airline industry had witness 87 new airline failures over the previous 20 years, Jetblue overcame difficulties and expressed confidence in the bright future.…
This report discusses whether and how JetBlue should list its shares on public from several angles. Two principal incentives prove that the IPO process could be inevitable, even without an optimal offering price, and valuation models including multiples comparison and income analysis imply the firm may be underpriced. Given the situation and all assumptions, an increment in either offering size or price is suggested.…
1. What are the advantages and disadvantages of going public? Discuss the IPO process. The Advantages of Going Public Financial Benefit The financial benefit in the form of raising capital is the most distinct advantage of going public. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Moreover, once the company is public, it has access to a new and liquid source of capital for any future needs it may have. Increased Public Awareness As IPOs often generate publicity by making a company’s products known to a new group of potential customers, it created public awareness of the company. Achieve Optimal Capital Structure Adding equity lowers the leverage (debt/equity ratio) of the company and helps equip the company with the tools to achieve optimal capital structure. The lowered leverage is, in fact, preferred by the lenders. Therefore, with the new equity in hand, a company can add a larger amount of debt, which will, in turn, result in a significantly higher debt/equity ratio. Increased market value The value of public companies tends to be higher than that of comparable private companies due to increased liquidity, available information, and a readily ascertainable value. Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company. By allowing employees to benefit alongside the company’s financial success increase productivity and loyalty to the company and also serve as a key selling mechanism to attract skillful human resource. Furthermore, issuing equity-based compensation will allow the company to attract top talent without incurring additional cash expenses.…
References: 1. Basu, Priya (2005). “A Financial System for India’s Poor.” Economic and Political Weekly. September 10, 2005. pp. 4008 – 4012…
In the beginning of 20th century, availability of credit in India, more particularly in rural areas, was almost absent. Agricultural and related activities were starved of organised, institutional credit. The rural folk had to depend entirely on the money lenders, who lent often at usurious rates of interest.…
Each of the group members took up each of the bank and did their respective…
8. If a customer does not get a satisfactory response to his grievance from the bank within _____ days, then he can approach the Banking Ombudsman.…
Monetary and fiscal system - Banking and credit structure in India – Financial institution - Fiscal system - theory and practice.…