The Founders and Owners of a Private Company Have Funded

question 34

Multiple Choice

The founders and owners of a private company have funded it through the following rounds ofinvestment: $$\begin{array} { l l c c } \text { Round } & \text { Source } & \text { Price } & \text { Number of Shares } \\\hline\text { Class A } & \text { Self } & \$ 1.00 & 200,000 \\\text { Class B } & \text { Angel } & \$ 1.00 & 300,000 \\\text { Class C } & \text { Venture Capital } & \$ 1.25 & 400,000\end{array}$$ 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 17.0. What will be the IPO price per share?

• A) $12
• B) $22
• C) $45
• D) $36

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