Use the Table for the Question(s)below

question 105

Multiple Choice

Use the table for the question(s) below.
David founds 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.
-An IPO is offered at $17 per share for 3 million shares.The IPO underwriters had a spread of 7%.What price did the underwriters pay per share of the IPO firm?

• A)$14
• B)$17
• C)$15.81
• D)$18.19
• E)$16

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Definitions:

Uncertainty

The state of having limited knowledge about present or future events, making outcomes unpredictable.

Expected Value

The anticipated value of a variable, calculated as a weighted average of all possible values, with weights being their probabilities of occurrence.

Income

The total amount of money received by an individual or group over a certain period, often derived from work, investments, or business ventures.

Probability

Probability is a measure of the likelihood of an event to occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.