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:

It is currently 2012 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 million new shares through this IPO. Assuming that your firm successfully completes its IPO, you forecast that 2012 net income will be $7 million.

a. Your investment banker advises you that the prices of other recent IPOs have been set such that the P/E ratios based on 2012 forecasted earnings average 18.0. 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?

Transcribed Image Text:

Round Series A Series B Series C Date Feb. 2009 Aug. 2010 Sept. 2011 Investor You Angels Venture capital Shares 600,000 1,200,000 2,000,000 Share Price ($) 1.00 2.50 3.25