David Found a Company and Goes Through the Investment Rounds

question 55

Multiple Choice

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 15.0.What will be the IPO price per share?

• A)$3.40
• B)$20.25
• C)$33.33
• D)$60.00

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Definitions:

Market Price

Today's price for buying or selling a service or asset within the marketplace.

Equity Multiplier

is a financial ratio indicating the proportion of the company’s assets financed by stockholders' equity, showing leverage.

Balance Sheet

A balance sheet that portrays a company's financial standing in terms of assets, liabilities, and the equity of its shareholders at a particular point.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, ending with the net income or loss for the period.