Question

Consider the following data for the airline industry for July 2018 (EV=enterprise value, Book=equity book value). Suppose Alaska Air (ALK) has 124 million shares outstanding. Estimate Alaska Air's share value using each of the five valuation multiples, based on the median valuation multiple of the other seven airlines shown. Company Name Market Capitalization Enterprise Value (EV) EV/Sales EV/EBITDA EV/EBIT P/E Forward P/E Alaska Air (ALK) 7286 8207 1.02 5.1 6.7 7.7 12.5 American Airlines (AAL) 17879 37327 0.87 5.7 8.2 10.5 8.2 Delta Air Lines (DAL) 35580 44164 1.02 5.7 8 10.8 8.8 Hawaiian (HA) 2023 2057 0.73 3.4 4.1 5.8 7.2 JetBlue Airways (JBLU) 5450 5814 0.8 4.1 5.9 4.9 10.8 SkyWest (SKYW) 2909 5040 1.56 7.2 12.6 6.6 11.8 Southwest Airlines (LUV) 30318 30691 1.44 6.9 8.9 8.6 12.3 United Continental (UAL) 21961 31393 0.8 5.7 9.2 11.4 9.3 Source: CapitalIQ July 2018 30-Dec-19 30-Dec-18 Total Revenue $8,781 Cost of Revenue, Total $3,848 EBITDA $4,933 Selling/General/Admin. Expenses, Total $2,846 Depreciation/Amortization $423 Interest Exp.(Inc.),Net-Operating, Total -$2 Unusual Expense (Income) $44 Other Operating Expenses, Total $559 Total Operating Expense $7,718 EBIT $1,063 Interest Inc.(Exp.),Net-Non-Op., Total -$21 Other, Net -$26 Net Income Before Taxes $1,016 Provision for Income Taxes $247 Net Income After Taxes $769 Diluted Weighted Average Shares 124.29 Diluted EPS Excluding ExtraOrd Items $6.19 Balance Sheet 30-Dec-18 Cash & Equivalents $221 Short Term Investments $1,300 Accounts Receivable - Trade, Net $323 Total Receivables, Net $323 Total Inventory $72 Prepaid Expenses $113 Other Current Assets, Total $8 Total Current Assets $2,037 Property/Plant/Equipment, Total - Gross $12,099 Accumulated Depreciation, Total -$3,486 Property/Plant/Equipment, Total - Net $8,613 Goodwill, Net $1,943 Intangibles, Net $122 Long Term Investments $3 Other Long Term Assets, Total $275 Total Assets $12,993 Accounts Payable $146 Accrued Expenses $1,165 Current Port. of LT Debt/Capital Leases $235 Other Current liabilities, Total $1,655 Total Current Liabilities $3,201 Long Term Debt $1,264 Deferred Income Tax $715 Other Liabilities, Total $3,482 Total Liabilities $8,662 Common Stock, Total $1 Additional Paid-In Capital $305 Retained Earnings (Accumulated Deficit) $5,133 Treasury Stock - Common -$643 Unrealized Gain (Loss) $9 Other Equity, Total -$474 Total Equity $4,331 Total Liabilities & Shareholders' Equity $12,993 Total Common Shares Outstanding 124.29 Statement of Cash Flows 30-Dec-18 Net Income/Starting Line 769 Depreciation/Depletion 423 Non-Cash Items 29 Cash Taxes Paid 31 Cash Interest Paid 60 Changes in Working Capital 501 Cash from Operating Activities 1,722.00 Capital Expenditures -696 Other Investing Cash Flow Items, Total -95 Cash from Investing Activities -791 Financing Cash Flow Items 43 Total Cash Dividends Paid -173 Issuance (Retirement) of Stock, Net -75 Issuance (Retirement) of Debt, Net -608 Cash from Financing Activities -813 Net Change in Cash 118

Answer 1

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