Floating 250 million shares next month, new Millenium Company is undergoing its IPO in an industry where the average P/E ratio for similar firms is 18. It expects to pay steady annual dividends of $1.38 per share in each of the first four years, and projects earnings of $750 million by year 4. Risk-model pricing necessitates a 14% discount rate. Considering the projected cash flows from the firm and the P/E for the industry, what would be your estimate of the price per share that the investment bank should set for the stock's IPO next month?
|Price at year 4||54|
|Year||Cash Flow||PV factor @ 14%||PV|
|So IPO price should be 36|
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