Use the table for the question(s)below.
David founds a company and goes through the investment rounds shown below:
He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0.
-What will be the IPO price per share?

Question

Use the table for the question(s)below.
David founds a company and goes through the investment rounds shown below:
  He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0.
-What will be the IPO price per share?

Quizplus · Accepted Answer

The market capitalization of the company after the IPO would be:
Market capitalization = Net income / P/E ratio
= $8,000,000 / 15.0
= $533,333.33

Since the company is issuing 2 million new shares, the IPO price per share would be:
IPO price per share = Market capitalization / Total number of shares
= $533,333.33 / 2,000,000
= $0.2667

Therefore, the IPO price per share would be $0.2667 or $33.33 (rounded to the nearest cent).

The answer is only C).

Use the Table for the Question(s)below