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Hi Class,

Please find the attachment with this email.


The attachment will tackles the lecture that was given yesterday.
For those absent, kindly coordinate with your classmates who were present. Those present should provide
ample background on the items that will be in the quiz.
Yes, there will be a quiz next week.
The quiz will have two components: The use of basic Corporate Finance formulas and computations and the
pricing for shares launched for initial public offering.

For IPO Pricing,


Typically given are (a) Amount to be infused into the company being listed, (b) Projected Net Income and (c)
P/E Multiple Market Comparable.
In addition, the soon to be listed company should readily disclose the existing number shares the company has
prior to the listing of new shares (pre-listing number of shares outstanding).
Step 1: Compute for post listing Market Capitalization
MarketCap: Projected Net Income x P/E Multiple Market Comparable
Note: Both numbers are "given".
Step 2: Compute for Dilution Amount
Dilution Factor: Amount to be infused into the company being listed / MarketCap
Note: Amount to be infused into the Company is a "given." MarketCap is derived from Step 1. Also, Dilution
Factor is a percentage.
Step 3: Compute for Post-Infusion Number of Shares Outstanding (after the IPO)
Post-Infusion Number of Shares: Pre-listing number of shares outstanding / ( 1 - Dilution Factor)
Note: Pre-listing number of shares outstanding is a "given". Dilution Factor is derived from Step 2.
Step 4: Derive the number of new shares issued during the IPO.
New Shares Issued: Post-Infusion Number of Shares - Pre-listing number of shares outstanding
Note: Pre-listing number of shares outstanding is a "given". Post-Infusion Number of Shares is derived from
Step 4.
Step 5: Derive the Cost per IPO "Offer" Share Price
IPO Offer Share Price: Amount to be infused to the being listed / New Shares Issued

Note: Amount to be infused into the Company is a "given." New Shares Issued is derived from Step 4.
To verify your computations,
Step 6: Compute for Earnings Per Share.
Earnings Per Share: Projected Net Income / Post-Infusion Number of Shares
Note: Projected Net Income is a "given". Post-Infusion Number of Shares is derived Step 4.
Step 7: Compute the P/E Multiple
Computed P/E Multiple: IPO Offer Share Price / Earnings Per Share
Note: IPO Offer Share Price is derived from Step 5. Earnings Per Share is computed in Step 6.
Step 8: Compare the Computed P/E Multiple with the "given" P/E Multiple
Note: The P/E Multiples must be the same.

Hope the formulas above will help in the open notes quiz!
Have a good long weekend.
Prof. de Ocampo