Your firm is getting ready to price their Initial Public Offering of common stock and your job is to...

 

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Your firm is getting ready to price their Initial Public Offering of common stock and your job is to estimate the offer price correctly. For the next 2 years you will pay dividends of $2 per share at the end of year one and $2.40 at the end of year 2. After year 2. dividends will still be paid but the growth rate will settle down to 5% per year. The required return on equity is 9%. Opening a gold mine costs $800,000. In one year we make $500,000, the year after that we make a million dollars and in year three we have to shut down the mine and pay land reclamation costs of half a million dollars. If we undertake this investment, what is our rate of return?

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To estimate the offer price correctly for the Initial Public Offering IPO of common stock you can us View the full answer