The founders and owners of a private company have funded it through the following rounds of investment: The owners decide to take the company public through an IPO, issuing 1 million new shares. Assuming that they successfully complete the IPO, the net income for the next year is estimated to be $5 million. The price of shares is set using average price-earnings ratios for similar businesses of 16. What will be the IPO price per share?

Question

The founders and owners of a private company have funded it through the following rounds of investment:  The owners decide to take the company public through an IPO, issuing 1 million new shares. Assuming that they successfully complete the IPO, the net income for the next year is estimated to be $5 million. The price of shares is set using average price-earnings ratios for similar businesses of 16. What will be the IPO price per share?

Quizplus · Accepted Answer

D) 11ea84dc_f51f_4514_9a63_21b1e248dc22_TB1316_00_TB1316_00 EPS = $5 million / 1.7 million; price = 16 × $5 million / 1.7 million = $47

The Founders and Owners of a Private Company Have Funded