David found 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 $9 million. His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses, which is 14. What will be the IPO price per share?

Question

David found 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 $9 million. His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses, which is 14. What will be the IPO price per share?

Quizplus · Accepted Answer

C) 11ea84dc_f51e_cfe0_9a63_81ebc4b28bf1_TB1316_00_TB1316_00 EPS = $9 million / 3.425 million; IPO price = $14 × $9 million / 3.425 million = $36.79

David Found a Company and Goes Through the Investment Rounds