Case Study: New England Airlines
Read the case study and answer the following questions.
1. Your first task is to consider NEAir from the perspective of its current owners.
a. What WACC would you use in a discounted cash flow valuation of NEAir?
b. What is the value of NEAir to its current owners? Please express your answer as NEAir’s market capitalization, i.e. the total market value of equity (not a per-share value).
2. Now consider NEAir from the perspective of IAI.
a. What WACC would you use in a discounted cash flow valuation of NEAir from IAI’s position as a foreign acquirer?
b. What is the value of NEAir to IAI with and without the projected synergies. Note that this should be a €-based valuation (hint: forward rates). Please express your answer as NEAir’s market capitalization, i.e. the total market value of equity (not a per-share value). Discuss any assumptions you made along the way and SHOW ALL WORK in your spreadsheet exhibit.
3. Given your results from questions 1 and 2, what do you recommend as a bidding strategy for IAI (in terms of your minimum and maximum bid)? Would your strategy change if you knew there were numerous potential bidders interested in NEAir?
The question belongs to Finance and it discusses about the case study New England Airlines. Questions about this case study have been answered in detail.
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