In 2012, 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 now 2015, 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 6.5 million new shares through this IPO. Assuming that your firm successfully completes its IPO, you forecast that 2015 net income will be $7.5 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 2015 forecasted earnings average 20.0. 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?

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Share Price ($) 1.00 Round Series A Investor You Aug. 2013 Date Shares Feb. 2012 500,000 1,000,000 Series B Angels 2.00 Sept. 2014 Venture capital 3.50 Series C 2,000,000