Would you buy the stock at the ipo at the offering price

Assignment Help Finance Basics

Reference no: EM132004253

Question: How much is the stock worth? You learned that Brussels Cafes, a company owning and operating four extremely successful restaurants in Milwaukee, is doing an IPO, or Initial Public Offering, next month. They are offering their stock at $32 per share. You are interested in pricing their shares, in order to identify whether you should buy any. The firm has no debt, just equity capital. Since you often visit their restaurants, you made some predictions about their annual cash flow. You expect the after-tax net cash flow, which the firm would immediately pay out to shareholders, to be $450K in each of the next four years, $500K in year 5, and in years 6 the firm's cash flow would be $540K. Starting year 6, that cash flow would continue in perpetuity, growing by 4% per year. Based on these predictions, calculate the maximum price you would be willing to pay for the stock, assuming

(1) you believe the appropriate cost of equity capital for the firm is 10% per year,

(2) the tax on dividend distributions you pay is 0%, and

(3) the number of fully diluted shares outstanding of the company is 200,000? Would you buy the stock at the IPO at the offering price of $32 per share?

ANSWER: Maximum price per share: _____

What would you do?

Reference no: EM132004253

Questions Cloud

How much should you be willing to pay for corporate bond : How much should you be willing to pay for a $50, 000 Corporate Bond that was issued in 2000 and will mature in 2025 (end-of-year)? The bond pays semi-annual.

Role of venture capital in the entrepreneurial process : Identify the ways in which each form of capital serves to maintain and sustain organizations or businesses over time

What is the portfolio expected return : Her funds are allocated with 54% in stock A and 46% in stock B. What is the portfolio expected return?

Coupon-paying bonds make annual coupon payments : What will be her realized yield on the bonds? Assume similar coupon-paying bonds make annual coupon payments.

Would you buy the stock at the ipo at the offering price : How much is the stock worth? You learned that Brussels Cafes, a company owning and operating four extremely successful restaurants in Milwaukee.

What is the current market yield on this bond : What is the current market yield on this bond?

How much is the weighted average number of shares : Preferred stock, $20 par value, 6% cumulative and Net income for the year was $125,000. How much is the weighted average number of shares

What is operating cash flow : That is, depreciation each year is $26,674/8. The tax rate is 34 percent. What is the operating cash flow?

What is the stock expected constant growth rate : Mulroney Motors' stock has a required return of 10% and its stock trades at $50 per share. The year-end dividend, D1, is expected to be $1.00 per share.

User Account

All Pages