8.16 Delhi Automotive Inc. is the leading supplier of specialty fasteners for passenger cars in the US market, with an estimated 25% share of this $5 billion market. Delhi’s rapid growth in recent years has been fueled by high levels of reinvestment in the firm. Although this has resulted in the firm’s having “state-of-the-art” plants, it also has resulted in the firm’s showing limited profitability and positive cash flow. Delhi is privately owned and has announced that it is going to undertake an IPO in the near future. Investors know that economies of scale are important in this highefixed-cost industry and understand that market share is an important determinant of future profitability. Thornton Auto Inc., a publicly traded firm and market share leader, has an estimated market share of 38% and an $800 million market value. How should investors value the Delhi IPO? Show your work. (Appendix)

Answer: $526.3 million