Please include Calculations:

Chapter 7 Financial Statement Analysis Il . ChaEter 7 CASE Orville Wright analyvzes the airline industry. Investors with an interest in or lending to airlines seek his advice and recommendations. Amelia Earhart, Orville's wealthiest client, asked him to determine which of two airlines offered her the better investment opportu- nity at the end of 2021, Amelia's interest centered on two of the so-called discount airlines. West Airlines was created after the United States deregulated the airline industry. Prior to deregula- tion, airlines priced tickets on a cost-plus basis. This arrangement allowed carriers to recover all of their costs and earn acceptable profit margins and returns on investment. In this environment older legacy carriers, such as American, Delta, and United, did not have an incentive for containing costs. The air carriers merely passed on those cost to their passengers in the form of ever escalating ticket prices. Mounting pressure from the public spurred Congress to substantially deregulate the passenger airline industry in the late 1970s. Sensing an opportunity to capitalize on airline deregulation, investors formed West Airlines. This post-regulatory start-up's business model focused on containing costs, such as non-unionized labor, and passing the cost savings on to their passengers in the form of lower ticket prices. The strategy proved financially successful as West gained market share from the legacy carriers and stimulated demand in consumers who previously did not utilize air travel. The financial success of West spawned other discount competitors, the most successful of which was jetGreen Airlines. Amelia Earhart wanted to purchase stock in either West or jetGreen. She paid Orville Wright for his analysis and recommendation. Orville begins his assignment by gathering the most recent financial statements for West and jetGreen Airlines (amounts in millions, except earnings per share): West jetGreen Income Statements: 2021 2021 Revenues $8,000 $4,000 Salaries expense 2,450 1,420 Fuel expense 2.040 1,075 Other operating expenses 1.650 905 Operating income 1,860 600 Interest expense 360 300 Pretax income 1.500 300 Income tax expense 600 120 Net income $ 900 $ 180 Earnings per share $ .45 $ 1.50 Balance Sheets: 12/31/21 12/31/21 Cash $ 500 $ 150 Accounts receivable 800 350 Equipment, net of depreciation 6,500 3,600 Other assets 1.200 900 Total assets $9,000 $5,000 Current liabilities $ 600 $ 300 Bonds payable 4.000 3.000 Common stock 2,000 1,200 Retained earnings 2.400 500 Total liabilities and s/equity 9.000 $5,000 Statements of Cash Flows: 2021 2021 Net income $ 900 $ 180 + Depreciation expense 200 90 Change in current accounts (110) (20) Cash flows from operating activities 990 250 Cash flows from investing activities: Purchase of equipment (500) (160) Cash flows from financing activities: Payment of dividends (350) (40) Net change in cash $ 140 $ 50Wright began by determining each firm's free cash flow for 2021, He projected that West's free cash flows would increase by 350 million annually during the four-vear fore- cast period. Wright concluded that jetGreen will realize annual increases of free cash flows of $20 million annually for the four-year forecast period. The analvst is confident about estimating the airlines free cash flows through 2025. After that four-year forecast horizon, however, Wright concluded that it would be necessary to caleulate the terminal values of the firms' free cash flows. Chapter 7 Financial Statement Analysis Il Wright estimated that each airline will grow 2% annually beyond 2025 because both discount airlines will become mature firms by that time. The analyst thinks that West will retain a more conservative capital strueture than jetGreen in the long-run. Consequently, Wright estimated West's long-term weighted average cost of capital at 7% and jetGreen's weighted average cost of capital at 8%. Wright gathered the following present value of money factors to help him value the firms. Period 2% % | 8% 1 08030 | 03458 | 02503 2 96117 | 87344 | 85734 3 94232| 81630 | 79383 4 | 92385| .76200| 73503 Wright believed that West's financial performance would be better than that of JjetGreen in the near future. Finally, Wright noted the current market price for each air carriers stock on December 31, 2021. West Airlines closing share price for 2021 was $7.26, while jetGreen closed at $22.95 per share. Chapter 7 Case Spreadsheet Template West jetGreen Market Share Price $ 7.26 S 22.95 EPS $ 0.45 1.50 Market P/E Ratio 16.13 15.30 Net income $ 900 $ 180 EPS 0.45 1.50 Number of shares 2,000 120 Share Price 7.26 22.95 Firm Value EBIT Net of tax Net EBIT PPE purchase Depreciaiton Net investment\fjetGreen FCF P.V. Factor PV of FCF FCF--2022 FCF--2023 FCF--2024 FCF--2025 TV Firm Value West jetGreen Firm Value Bonds payable Common equity value Number of shares 2,000 120 Intrinsic share value EPS $ 0.45 $ 1.50 Intrinsic P/E Ratio