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 $8 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 share of the company will David own after the IPO?

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 $8 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 share of the company will David own after the IPO?

Quizplus · Accepted Answer

A) 11ea84dc_f51e_f6f2_9a63_237598467795_TB1316_00_TB1316_00 David's share = 0.325 million / 3.35 million = 10%

David Found a Company and Goes Through the Investment Rounds