Terence Mann is considering buying some shares of common stock of an initial pub

Question

Terence Mann is considering buying some shares of common stock of an initial public offering by NewAge Communications Corporation The privately held company is going public by issuing 2 million new shares at $20 per share. Terence gathered the following information about NewAge: The required rate of return for Terence from a share of common stock for this type of company is 13 percent. Compare the selling price of the stock with its value as obtained from different valuation methods. Would you recommend that Terence buy the stock?

Explanation / Answer

Estimated Dividend in one year 2 d1 growth rate 8% g Rate of return 13% k P = D1/K-g 40 Share Value by DDM Liquidation assets 250 M share 5 M assets available for 1 M shares 50 M For 1 Share 50 By both the methods it is beneficial to purchase

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