9. 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:

Round Date Investor Shares Share Price ($)

Series A Feb. 2008 You 500,000 1.00 Series B Aug.2009 Angels 1,000,000 2.00 Series C Sept. 2010 Venture capital 2,000,000 3.50 It is now 2011 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 2011 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 2011 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?