Indigo Airlines Indigo Airlines is a firm in severe financial distress. The firm can no longer pay its bills on time and it is far behind on payments to its banks and long-term debt holders. The firm has decided to either be purchased by another air carrier or liquidate its assets and close. The managers have approached Altruistic Airlines about being acquired. After examining Indigo's financial statements, looking at the routes owned by Indigo, and looking at the condition of the fixed assets, Altruistic Airlines has offered to pay the stockholders of Indigo Airlines $8 million to be acquired. Indigo Airlines covers flights to both areas in which Altruistic already flies, but also has routes in areas into which Altruistic is interested in expanding. As part of the analysis, Altruistic determined that the additional cash flows resulting from the acquisition would total $500,000 this year (Year One) and would grow at a rate of 4% for the next three years. After this time, the cash flows would grow at a constant rate of 2% annually for the foreseeable future. The "weighted average cost of capital" (WACC) of Altruistic Airlines would be 8% after the merger. If, instead, Indigo Airlines decides to liquidate its assets, it will pay off its debt and give any remaining funds to the firm's stockholders. Indigo Airlines' balance sheet is attached. The "Accrued Wages" were earned within the last 90 days prior to filing for bankruptcy. The "Unpaid Employee Benefits" were due in the six months prior to the filing for bankruptcy. The "Unsecured Customer Deposits" are for less than $900 each. Indigo Airlines has no property taxes past due. The "First Mortgage" is secured against the fixed assets of the firm. The "Subordinate Debentures" are subordinate to the "Notes Payable to Banks." The liquidation of the firm's Current Assets would produce $186,000; liquidation of the firm's fixed assets would produce $800,000. This totals to $986,000 in funds to distribute to the creditors and stockholders of the firm. The trustee expenses associated with the bankruptcy totaled S50,000 and unpaid expenses incurred after the filing of the bankruptcy petition, but before the trustee was appointed totaled $10,000. 11. Given the information provided in the case study above and using the "Corporate Value Model," calculate the maximum value (in millions of dollars) that Altruistic Airlines should pay for Indigo Airlines' stock. a. In the footnote to the attached balance sheet for Indigo Airlines, it states that Indigo Airlines currently has 20 million shares of stock outstanding. Given this and the total value of Indigo Airlines' stock that you calculated in Question #1 above, what is the theoretical offering price for each share of Indigo Airlines' stock that is outstanding? b. According to the case study above, Altruistic Airlines has offered 58 million to Indigo Airlines. Calculate this offering price on a per share basis, based on the 20 million Stock shares of Indigo Airlines that are outstanding. c. Why do you think there is a difference between the stock value per share that you calculated in Question #1.a, and Question #1.b.? Indigo Airlines Indigo Airlines is a firm in severe financial distress. The firm can no longer pay its bills on time and it is far behind on payments to its banks and long-term debt holders. The firm has decided to either be purchased by another air carrier or liquidate its assets and close. The managers have approached Altruistic Airlines about being acquired. After examining Indigo's financial statements, looking at the routes owned by Indigo, and looking at the condition of the fixed assets, Altruistic Airlines has offered to pay the stockholders of Indigo Airlines $8 million to be acquired. Indigo Airlines covers flights to both areas in which Altruistic already flies, but also has routes in areas into which Altruistic is interested in expanding. As part of the analysis, Altruistic determined that the additional cash flows resulting from the acquisition would total $500,000 this year (Year One) and would grow at a rate of 4% for the next three years. After this time, the cash flows would grow at a constant rate of 2% annually for the foreseeable future. The "weighted average cost of capital" (WACC) of Altruistic Airlines would be 8% after the merger. If, instead, Indigo Airlines decides to liquidate its assets, it will pay off its debt and give any remaining funds to the firm's stockholders. Indigo Airlines' balance sheet is attached. The "Accrued Wages" were earned within the last 90 days prior to filing for bankruptcy. The "Unpaid Employee Benefits" were due in the six months prior to the filing for bankruptcy. The "Unsecured Customer Deposits" are for less than $900 each. Indigo Airlines has no property taxes past due. The "First Mortgage" is secured against the fixed assets of the firm. The "Subordinate Debentures" are subordinate to the "Notes Payable to Banks." The liquidation of the firm's Current Assets would produce $186,000; liquidation of the firm's fixed assets would produce $800,000. This totals to $986,000 in funds to distribute to the creditors and stockholders of the firm. The trustee expenses associated with the bankruptcy totaled S50,000 and unpaid expenses incurred after the filing of the bankruptcy petition, but before the trustee was appointed totaled $10,000. 11. Given the information provided in the case study above and using the "Corporate Value Model," calculate the maximum value (in millions of dollars) that Altruistic Airlines should pay for Indigo Airlines' stock. a. In the footnote to the attached balance sheet for Indigo Airlines, it states that Indigo Airlines currently has 20 million shares of stock outstanding. Given this and the total value of Indigo Airlines' stock that you calculated in Question #1 above, what is the theoretical offering price for each share of Indigo Airlines' stock that is outstanding? b. According to the case study above, Altruistic Airlines has offered 58 million to Indigo Airlines. Calculate this offering price on a per share basis, based on the 20 million Stock shares of Indigo Airlines that are outstanding. c. Why do you think there is a difference between the stock value per share that you calculated in Question #1.a, and Question #1.b