A few years ago, you founded Fresh 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. 2015	You	1,000,000	1.00
Series B	Aug. 2016	Angels	1,000,000	2.00
Series C	Sept. 2018	Venture capital	3,000,000	3.50

Currently, it is 2020 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 5 million new shares through this IPO. You forecast that 2020 net income will be $4 million. Your investment banker advises you that the prices of other recent IPOs have been set such that the P/E ratios based on 2020 forecasted earnings average 25. Assuming that your IPO is set at a price that implies a similar multiple.

a) What will your IPO issuing price per share be? Assuming that the underwriting fee is 7%, how much can you raise from the IPO? (1 mark)

b) The IPO is a success with investors, and the share price rises 30% on the first day of trading. What is the market value of the firm post IPO? (1 mark)

c) What percentage of the firm will you own after the IPO? (1 mark)

d) Assuming that the post-IPO value of the firm is its fair market value. What is the total cost to the firms original investors due to market imperfections from the IPO? What is the cost to the firms original investors due to underpricing? What is the cost to the firms original investors due to underwriting fees? (2 marks)