What price should the firm ask for its stock

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Reference no: EM131535420

Diamond Jim's Entertainment Inc. has been an all-debt financed firm since its inception 5 years ago. The firm is about to conduct an initial public offering (IPO) of stock and plans to sell 24m shares. The firm's last reported monthly NI was $12m. The firm expects no NI growth for the 4 months immediately following the IPO. After that, the firm expects its NI at rate of 14%per year for the following 6 months. Subsequent to that, the firm's NI is expected to grow at a rate of 8% pa. for the foreseeable future. The firm will not pay any dividends in the foreseeable future. The firm's cost of stock will initially be 14%. However, the CFO expects that the firm's cost of stock to 10% nine months after the IPO to reflect the firm's increased stability and investor confidence resulting from the IPO. What price should the firm ask for its stock? Cash flows occur on a monthly basis at the end of the month.

Reference no: EM131535420

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