David Found a Company and Goes Through the Investment Rounds

question 105

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 share of the company will David own after the IPO?

• A)11%
• B)14%
• C)16%
• D)22%

---

Definitions:

Motorcycles

Two-wheeled vehicles powered by an engine, designed for individual or dual riders.

Specialization

The practice of focusing on a limited scope of products or skills to gain efficiency and quality in production.

Orange Production

The cultivation and harvesting process of oranges, often for commercial sale and consumption.

Bushels

A measure of volume commonly used in agriculture, particularly in the United States, for crops like wheat, corn, and soybeans.