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Omega Ltd has just raised several billion dollars from an initial public offering and its shares are just about to go public (traded on a
Omega Ltd has just raised several billion dollars from an initial public offering and its shares are just about to go public (traded on a stock exchange). The shares were issued at $40 each and based on current earnings (EPS $0.25) gives it a trailing P/E ratio of 160! Assuming that Omega Ltd has a retention ratio of around 70% and the discount rate for a similar public firm is 15%, do you believe the share price of Omega is likely to increase/ decrease or stay the same when it goes public? Provide supporting calculations.
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