Business Finance Homework Help

I’m working on a business discussion question and need an explanation and answer to help me learn.

You are the CFO of a large, private, multinational food company. This morning in the elevator, the CEO mentioned that she was interested in raising some money in order to finance the potential acquisition of a competitor. You suggested the possibility of issuing common stock. The CEO says she doesn’t remember much about stock valuation from the finance class she took at Pierce College way back in 2008, and asks you to write a brief (150-250 word) memo summarizing the various methods of equity valuation and your expectation of the IPO price of your company. Your company currently pays a $1.50 dividend per quarter, has an ROE of 10%, and has EPS of $10 per year. An appropriate discount rate is about 7%. Hint: You will use the DDM to calculate an expected IPO price.