Question
The following are estimates for the annual EBIT of EasyJet Plc over the next few years: Year 2014 2015 2016 2017 2018 EBIT (million) 360
The following are estimates for the annual EBIT of EasyJet Plc over the next few years:
Year | 2014 | 2015 | 2016 | 2017 | 2018 |
EBIT (million) | 360 | 370 | 400 | 420 | 430 |
(i) Describe what adjustments you need to do to these estimates to arrive at the Free Cash Flows of EasyJet for these years.
(ii) You have no numbers after 2018. Describe two methods by which you could estimate the value of its earnings stream after 2018? Which of these do you think is more reliable and why?
(iii) What does the beta of a company measure? Roughly, given what you know about the low cost airline business, do you think is the beta of EasyJet?
(iv) EasyJet Plc currently has a relatively low gearing (net debt to assets) of just over 10%. Do you think it could add value for its shareholders by increasing its gearing? Discuss the major considerations briefly
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