What percentage of the firm will you own after the ipo

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Reference no: EM133616006

Problem

Several years back, you established Wilderness Ventures, Inc., a company focused on retailing specialized gear and apparel for leisure pursuits like camping, skiing, and hiking. Up to this point, your business has successfully completed three rounds of funding.

Round	Date	Investor	Shares	Share Price$
Series A	Aug. 2015	You	500,000	1.00
Series B	Sept. 2016	Angels	1,000,000	2.50
Series C	Feb. 2018	Venture capital	3,500,000	4.00

Currently, it is 2020 and you need to raise additional capital to expand your business. you've made the decision to make your company publicly traded through an Initial Public Offering (IPO). You would like to issue an additional 4 million new shares through this IPO. You forecast that 2020 net income will be $3 million. Your investment banker advises you that the prices of other recent IPOs have been set such that the the Price-to-Earnings (P/E) ratios based on 2020 forecasted earnings average 30. Assuming that your IPO is set at a price that implies a similar multiple.

Question I. What will your IPO issuing price per share be? Assuming that the underwriting fee is 6%, how much can you raise from the IPO?

Question II. The IPO is a success with investors, and the share price rises 25% on the first day of trading. What is the market value of the firm post IPO?

Question III. What percentage of the firm will you own after the IPO?

Question IV. Assuming that the post-IPO value of the firm is its fair market value. What is the total cost to the firm's original investors due to market imperfections from the IPO? What is the cost to the firm's original investors due to under pricing? What is the cost to the firm's original investors due to underwriting fees?

Reference no: EM133616006

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