Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing i
ID: 2794339 • Letter: T
Question
Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Date Investor Shares Share Price ($) Series A Feb. 20132013 You 700 comma 000700,000 1.501.50 Series B Aug. 20142014 Angels 1 comma 100 comma 0001,100,000 2.502.50 Series C Sept. 20152015 Venture Capital 2 comma 300 comma 0002,300,000 2.502.50 It is now 20162016 and you need to raise additional capital to expand your business. You have decided to take your firm public through an IPO. You would like to issue an additional 5.55.5 million new shares through this IPO. Assuming that your firm successfully completes its IPO, you forecast that 20162016 net income will be $ 7.5$7.5 million. a. Your investment banker advises you that the prices of other recent IPOs have been set such that the P/E ratios based on20162016 forecasted earnings average 19.119.1. Assuming that your IPO is set at a price that implies a similar multiple, what will be your IPO price per share? b. What percent of the firm will you own after the IPO?
Explanation / Answer
Shares outstanding before IPO = 700000 + 1100000 + 2300000 = 4100000
New shares issued = 5500000
total shares = 9600000
Forecast earnings = 7500000
Price earnings = 19.1
Market value = 19.1* 7500000 = 143250000
Price per share = 143250000 / 9600000 = 14.92 per share
Your share = 700000 / 9600000 = 7.2917%
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