David Found a Company and Goes Through the Investment Rounds

question 43

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 $9 million. His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses, which is 14. What will be the IPO price per share?

• A) $3.68
• B) $22.07
• C) $36.79
• D) $68.06

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Definitions:

Variables

Elements or factors within a study or experiment that can change and potentially influence outcomes.

Scientific Method

A systematic process for gathering knowledge and testing scientific theories and hypotheses through observation and experimentation.

Hypothesis

A proposed explanation for a phenomenon, made as a starting point for further investigation, which can be tested through research and experimentation.

Theory

A coherent group of propositions formulated to explain a group of facts or phenomena in the natural world and repeatedly confirmed through experiment or observation.