An investment bank is taking a firm public. The bank finds that recently five firms from...

An investment bank is taking a firm public. The bank finds that recently five firms from the same industry went public at an average offer price per share to EBITDA per share ratio of 7.5. If the private firm’s EBITDA is $1.2 per share for the most recent year, then an offer price estimate would be

A.$7.5

B.$8.5

C.$9.0

D.$10

Expert Solution

While deciding offer price of an ipo (initial public offer) many factors are considered. One of which is comparison with the firms within the same industry. In given case the firms within the same industry went public at 7.5 of EBTIDA ratio. Hence it can be taken as base.

Therefore,

Offer price estimate = 7.5 × EBITDA OF Firm GOING

Public

= 7.5 × $ 1.2

Offer price estimate = $ 9.

Rahul Sunny answered 2 years ago

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