expected ipo share price diluted shares outstanding equity value plus: net debt enterprise value

enterprise value/2005e reserves Enterprise value/2006 ebitdax Enterprise value/2007 ebitdax enterprise value/fcf

Given Exhibit P9-11.2 Solution Legend Various share prices Expected IPO share price Diluted shares outstanding (millions) Equity value (millions) Plus: net debt (millions) Enterprise value (millions) $ 2005E reserves 2006 EBITDAX 2007 EBITDAX Free Cash Flow (FCF) $ $ $ $ $ 20.00 $ 51.6 1,032.00 $ 740 $1,772 700 302 280 191 22.00 $ 51.6 1,135.20 $ 688 $1,824 24.00 $ 51.6 1,238.40 $ 637 $1,875 26.00 $ 51.6 1,341.60 $ 585 $1,927 28.00 $ 51.6 1,444.80 $ 534 $1,978 = Value given in problem = Formula/Calculation/Analysis requ = Qualitative analysis or Short answ = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output 30.00 51.6 1,548.00 482 $2,030 million million million million Solution Part a. Expected IPO share price Enterprise Value/2005E reserves Enterprise Value/2006 EBITDAX Enterprise Value/2007 EBITDAX Enterprise Value/FCF Part b. Industry $ 20.00 $ 22.00 $ 24.00 $ 26.00 $ 28.00 $ 30.00 Mean Median Maximum Minimum 2.83 2.95 3.39 2.05 6.33 6.40 7.96 5.12 6.96 7.15 7.94 5.90 8.68 9.77 10.62 6.08 Comparisons with the median suggest that a price in the upper range of $20-$30 is possible. Since indications of interest are high, it makes sense to price the issue in the $25 - $30 price range. Part c. Trying to set the price outside the range may not be a very good idea. Investors like to make some returns on the IPO opening. If investors perceive the price to be too high,the indications of interest may not translate into actual demand, and the IPO offering may fail. uired wer required