1. Assume that today is December 31, 2014, and that the following information applies the Vermeil Airlines: Revenue for 2015 is expected to be $1,750 million Operating Expenses (including depreciation and amortization) are expected to be $1,075 million Depreciation and amortization for 2015 will be $100 million The company expects to have a 29.926% tax rate The change in gross property, plant & equipment (PP&E) is expected to be $200 million The company anticipates that the change in net operating working capital (NOWC) from 2014 to 2015 will be $85 million The company anticipates that it will grow at a constant rate of 6% in to perpetuity Vermeils beta is 1.15, the current treasury yield is 3.25% and the historical return on the market is 12.598% The companys Total Assets are $6,558.35 million, and the companys debt is $3,000 million The before-tax cost of debt is 7.50% The company has 200 million shares outstanding 1. What is the value of the total company? 2. What is the value of the companys equity? 3. What is the company worth on a per share basis? 4. If the company is offered $40 per share by its competitor, Destiny Airways, should the Board of Directors accept the offer? Why or why not?

2. Assume that today is December 31, 2014, and that the following information applies the Vermeil Airlines: Annual revenue for 2014 was $1,500 million and is expected to grow over the next 5 years at a rate of 20% per year (2015-2019) Operating Expenses (including depreciation and amortization) are expected to be 80% of revenue during 2015 and 2016, and 70% of revenue during 2017 through 2019 Depreciation and amortization for 2015 will be $150 million The company expects to have a 32% tax rate The change in gross property, plant & equipment (PP&E) is expected to be $200 million in 2015, and is assumed to grow 10% per year thereafter The company anticipates that the change in net operating working capital (NOWC) from 2014 to 2015 will be $85 million, and that NOWC will grow at the same rate as revenues in future years The company anticipates that it will grow at a constant rate of 3.0% into perpetuity at the end of the planning period (Terminal Value in 2019) Vermeils beta is 1.75, the current treasury yield is 3.25% and the historical return on the market is 11.5% The companys target capital structure is 25% debt financing, 10% preferred stock financing, and 65% common equity financing The yield on preferred stock is 10.5% The before-tax cost of debt is 7.50% The companys total assets were $1,300 million at the end of 2014 The company has 200 million shares outstanding Questions: 1. What is the value of the total company? 2. What is the value of the companys equity? 3. What is the company worth on a per share basis? 4. If the company is offered $40 per share by its competitor, Destiny Airways, should the Board of Directors accept the offer? Why or why not? 5. EBITDA Multiple 5x Terminal Value 6. Revenue Multiple 3.5x Terminal Value