Southwest Airlines Recent stock price $ 20.69 P/E ratio 49.3 Dividend yield 0.10% Beta 1.1 Financial...

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Southwest Airlines Recent stock price $ 20.69 P/E ratio 49.3 Dividend yield 0.10% Beta 1.1 Financial statement forecast 2001 2002E 2003E 2005E/2007E Total debt ($ mill) 1841.8 Revenue ($ mill) 5555.2 6000 7100 10,300.00 Operating margin 17.10% 18.00% 24.50% 27.00% Tax rate 31.00% 38.50% 38.50% 38.50% Common shares outstanding (mill) 776.8 785 795 815 The market risk premium is 5% The short-term risk free rate is 2% The long-term risk free rate is 5% NOPAT=EBIT(1-t) Assume the marginal tax rate going forward at the time of the case is 38.5%. Issue Moody's Amount rating outstanding Maturity date Yield to maturity Short-term bank debt NA $475 million NA NA Floating rate secured notes NA $200 million 2004 NA Private notes 5.10-6.10 NA $614 million 2006 NA Floating rate French Bank debt NA $52 million 2012 NA 8.75 Note Baal $100 million Oct-03 5.65% 8.00 Note Baal $100 million Feb-05 5.91% 7.875 Debenture Baal $100 million Sep-07 7.41% 7.375 Debenture Baal $100 million Feb-27 8.68% Capital leases NA $109 million NA NA What is your best guess of the cost of equity at Southwest? 11.05% 8.05% 10.5% 7.5% Southwest Airlines Recent stock price $ 20.69 P/E ratio 49.3 Dividend yield 0.10% Beta 1.1 Financial statement forecast 2001 2002E 2003E 2005E/2007E Total debt ($ mill) 1841.8 Revenue ($ mill) 5555.2 6000 7100 10,300.00 Operating margin 17.10% 18.00% 24.50% 27.00% Tax rate 31.00% 38.50% 38.50% 38.50% Common shares outstanding (mill) 776.8 785 795 815 The market risk premium is 5% The short-term risk free rate is 2% The long-term risk free rate is 5% NOPAT=EBIT(1-t) Assume the marginal tax rate going forward at the time of the case is 38.5%. Issue Moody's Amount rating outstanding Maturity date Yield to maturity Short-term bank debt NA $475 million NA NA Floating rate secured notes NA $200 million 2004 NA Private notes 5.10-6.10 NA $614 million 2006 NA Floating rate French Bank debt NA $52 million 2012 NA 8.75 Note Baal $100 million Oct-03 5.65% 8.00 Note Baal $100 million Feb-05 5.91% 7.875 Debenture Baal $100 million Sep-07 7.41% 7.375 Debenture Baal $100 million Feb-27 8.68% Capital leases NA $109 million NA NA What is your best guess of the cost of equity at Southwest? 11.05% 8.05% 10.5% 7.5%