Three years ago, you founded Outdoor 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

It is now 2016 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 5.0 million new shares through this IPO. Assuming that your firm successfully completes its IPO, you forecast that 2016 net income will be $7.5 million.

a. Your investment banker advises you that the prices of other recent IPOs have been set such that the P/E ratios based on 2016 forecasted earnings average 21.2. Assuming that your IPO is set at a price that implies a similar multiple, what will be your IPO price per share?

b. What percent of the firm will you own after the IPO?

Round Series A Series B Series C Date Feb. 2013 Aug. 2014 Sept. 2015 Investor You Angels Venture Capital Shares 500,000 1,200,000 2,300,000 Share Price ($) 1.00 2.00 3.25