Part $1$

Because of his business acumen and an element of luck, Mr$.$ Businessman$$s TVW Corp. has been doing really well and has become one of the major players in baby furniture industry in North America. Due to its rapid growth, the demand for capital for TVW Corp. is getting more urgent as days go by$.$ Mr$.$ Businessman and his leadership group of the company now are very seriously reconsidering the idea of taking company public $$ i$.$e$.,$ selling a part of ownership of the company to the public in order to raise the needed capital for company growth.

Mr$.$ Businessman rehired the brokerage firm he had consulted previously and wanted some help from them with respect to all aspects of $$going public$$ for the company. The term for this activity in the investment business is called $$IPO$$ initial public offering.$$

One of the major steps in a successful IPO is to price the company share properly. The company$$s instinct is to price the shares as high as possible so that company can raise a lot of capital from the stock selling. But if the price is set too high, the demand for the stock is going inevitably low. However, if the share is priced too low, then the company is not going to achieve its fund$-$raising objectives. Therefore, the trick here is to price the company stock at such a price that is low enough to attack a lot of buying interest in the market, also it is high enough so that company can raise enough funds to meet its growth needs.

The first step to perform a valuation of the company stock is to collect company data with respect to its earnings and growth. Then we can do some research regarding how the market is evaluating similar companies in the market. Eventually company can come up a share price that satisfies its needs.

The following data are available $($both real and projected$)$:

$1.$ The earning growth rate is projected at $45\%$ for the first five years after $2019$; After that, the growth rate will become more reasonable at $9\%$ per year for the foreseeable future.

$2.32\%$ of earnings was paid out as dividend for year $2019($Reference to the EPS in the Income Statement on page $9).$ The dividend growth rate is identical to earning growth rate.

$3.$ The required rate of return $($discount rate$)$ is $14\%$

In addition to the calculated share price based on real$/$projected data, there are a number of other important factors to consider in order to make IPO a success. These factors include, first of all, the general market performance. In general, IPO is less likely to be successful in a bear market than in a bull market environment. So$,$ the timing of taking a company public is very important. The second factor is the performance of the industry the company is in$.$ If financial performance of the companies in the same industry is performing well then, your IPO is most likely to be a successful event. Otherwise, you would have harder time to raise money.

Table $2\mathrm{.}1-$ Statement of Income

$\backslash$table$[[\backslash$table$[[$TVW Corporation$],[$Statement of Income$],[$For the year ended Dec $31,2019]]],[$Sales revenue,$$,650,000],[$Cost of goods sold,,$380,000],[$Gross profit,,$270,000],[$Operating Expense$],[$Wages expense,,$43,900],[$Rent expense,,$3,250],[$Utilities expense,,$2,400],[$Depreciation expense,,$20,000],[$Income from Operation,,$200,450],[$Interest expense,,$3,000],[$Income before income tax,,$197,450],[$Income tax expense,,$19,745],[$Net income,$$,177,705],[$Total common shares,,$100,000],[$EPS$,$$$,1\mathrm{.}78]]$

Use the above information to answer the following :

$2.$ Use the information provided on page $2,3$ and $9,$ and the most appropriate valuation approach to calculate the expected share price of the company stock $($Hint: supernormal growth$).$ Please show detailed steps and list all input variables you use in your calculation $($Keep $4$ decimal points for intermediate calculation and round your final answer to two decimal points$)($Total $15$ marks$-$ partial marks are given to correct steps$).$