2. An analyst is evaluating an IPO (initial public offerings). He identifies a comparison firm with P/E=10 and debt-to-equity =0.5 (debt is assumed to be risk-free). He thinks the IPO should have a value to earning ratio equals to 70% of the comparison firms' value to earning ratio. The IPO is expected to earn 1,000 next year. The risk-free interest rate is 4% and the tax rate is 40%. Find the value of the IPO if it has no debt