Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Founder Seed Series A Date Feb. 2020 Aug. 2021 Sept. 2022 Investor Shares Share Price ($) You Angels Venture Capital 5,000,000 1,000,000 4,000,000 1.00 2.00 3.50 Currently, it is 2023 and you need to raise additional capital to expand your business. You have decided to take your firm public through an IPO. You would like to issue an additional 6.0 million new shares through this IPO. You currently have $5.0 million in cash (net of debt), and forecast earnings before interest and taxes of $7.5 million this year. a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be? b. What percentage of the firm will you own after the IPO? a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be? The enterprise value of the firm at the IPO is $150 million. (Round to the nearest integer.) The IPO price will be $ 15.50 per share. (Round to the nearest cent.) b. What percentage of the firm will you own after the IPO? You will own 31.3% of the firm. (Round to one decimal place.)
Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Founder Seed Series A Date Feb. 2020 Aug. 2021 Sept. 2022 Investor Shares Share Price ($) You Angels Venture Capital 5,000,000 1,000,000 4,000,000 1.00 2.00 3.50 Currently, it is 2023 and you need to raise additional capital to expand your business. You have decided to take your firm public through an IPO. You would like to issue an additional 6.0 million new shares through this IPO. You currently have $5.0 million in cash (net of debt), and forecast earnings before interest and taxes of $7.5 million this year. a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be? b. What percentage of the firm will you own after the IPO? a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be? The enterprise value of the firm at the IPO is $150 million. (Round to the nearest integer.) The IPO price will be $ 15.50 per share. (Round to the nearest cent.) b. What percentage of the firm will you own after the IPO? You will own 31.3% of the firm. (Round to one decimal place.)
Chapter21: Partnerships
Section: Chapter Questions
Problem 49P
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Question
Transcribed Image Text:Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your
company has gone through three funding rounds:
Round
Founder
Seed
Series A
Date
Feb. 2020
Aug. 2021
Sept. 2022
Investor
Shares
Share Price ($)
You
Angels
Venture Capital
5,000,000
1,000,000
4,000,000
1.00
2.00
3.50
Currently, it is 2023 and you need to raise additional capital to expand your business. You have decided to take your firm public through an IPO. You would like to issue an additional 6.0 million new
shares through this IPO. You currently have $5.0 million in cash (net of debt), and forecast earnings before interest and taxes of $7.5 million this year.
a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming
that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be?
b. What percentage of the firm will you own after the IPO?
a. Your investment banker advises you that the prices of other recent IPOs have been set such that the enterprise value/EBIT ratios based on 2023 forecasted earnings average 20.0 x. Assuming
that your IPO is set at a price that implies a similar multiple, what will your IPO price per share be?
The enterprise value of the firm at the IPO is $150 million. (Round to the nearest integer.)
The IPO price will be $ 15.50 per share. (Round to the nearest cent.)
b. What percentage of the firm will you own after the IPO?
You will own 31.3% of the firm. (Round to one decimal place.)
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