Question

Martha founded a company and took it through the investment rounds shown below:

Round Source Price Number of Shares

Series A Self $0.50 400,000

Series B Angel $1.00 400,000

Series C Venture Capital $6.50 300,000

Series D Venture Capital $7.25 400,000

She then decided to take the company public through an IPO, issuing 1 million new shares. Assuming that she successfully completes the IPO, the company’s net income for the next year is estimated to be $7 million. Based on advice from her investment banker, Martha will set the price per share for the IPO using the average price-earnings ratios for similar businesses, which is 15. What will be the IPO price per share?

Answer 1

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