Key Information: A prominent digital entertainment company FetNix is seeking to price it's shares when the company IPOs next month. An initial public offering (IPO) is when a company sells shares of equity for the first time. They plan to have 8,000,000 outstanding shares after the offering. FetNix recently observed a dip in subscribers and the board has asked you to value the company under the new growth assumptions to determine if an IPO is attractive at this time. The company had 12.0M subscribers across the world in 2021 who each pay an average monthly subscription cost of $18. Assumptions for your model are as follows: managers believe that subscriptions will drop 12% in 2022 and 6% in 2023 from pandemic highs but then begin to grow at 3% from 2024 onward, essentially matching global population growth. To remain competitive, subscription prices will grow at only 4% per year every year. The talent cost to produce the content they sell is estimated to increase dramatically even while they produce the same quantity of new content. The compensation for the production staff and performers will increase at 10% per year throughout the period. The company typically estimates the non-labor elements of their cost of good sold to be quite small, and they estimate it as a % of production labor cost. SG&A represents the sales, marketing and management costs primarily for which the tight labor market has caused managers to forecast a 15% jump in this expense in 2022, but then only grow by 3% in the remaining years. Cash has been higher than managers think is necessary due to the subscriber boom in the pandemic, so they will look to decrease cash as given in the assumption cells below. Accounts receivable are negligible, instead customers prepay for their subscription, on average prepaid subscriptions are 14 days of sales. Inventory is also negligible in this business. The company's payables are all wages payable and are estimated as approximately half of the monthly combined total of Production Labor and SG&A cost (ie 50% x 1/12). You may use 4% of the total of Production Labor and SG&A as your estimate. Production equipment only seems to get more expensive, like many of the business costs, so they estimate it as a % of COGs rather than as a % of sales. Other current assets and other current liabilities relate to royalties paid, so can be estimated as a constant % of sales. The company issued $253M in 8% coupon debt in 2020 at par value with a maturity date of 2028, and has no plans to issue new debt or pay off its current debt in the forecast period. Their long run D/E target is 50%. The company started paying dividends in 2021 and will continue to pay them. They do not plan any other equity funding activity. Following the forecast period, free cash flow is expected to grow at 3%. Except as previously referenced, all other forecast ratios will remain constant. You should assume 365 days in a year. Additional information on current rates in the market are available in table to the right.

All blue cells require answers. Formulas should be provided as well.

What price per share are they estimating for the IPO? Would you be in favor of the IPO at this price? What price per share are they estimating for the IPO? Would you be in favor of the IPO at this price