Start-Up Industries is a new firm that has raised $360 million by selling shares of tock.Management plans to earn a 20% rate of return on equity, which is more than the 15% ate of return available on comparable-risk investments. Half of all earnings will be reinveste n the firm. a. What will be Start-Up's ratio of market value to book value? Note: Do not round intermediate calculations. Market-to-book ratio b. What will be Start-Up's ratio of market value to book value if the firm can earn only a rate of return of 5% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal plac
Start-Up Industries is a new firm that has raised $360 million by selling shares of tock.Management plans to earn a 20% rate of return on equity, which is more than the 15% ate of return available on comparable-risk investments. Half of all earnings will be reinveste n the firm. a. What will be Start-Up's ratio of market value to book value? Note: Do not round intermediate calculations. Market-to-book ratio b. What will be Start-Up's ratio of market value to book value if the firm can earn only a rate of return of 5% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal plac
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 7-26 Valuing Businesses (LO3)
Start-Up Industries is a new firm that has raised $360 million by selling shares of
stock.Management plans to earn a 20% rate of return on equity, which is more than the 15%
rate of return available on comparable-risk investments. Half of all earnings will be reinvested
in the firm.
a. What will be Start-Up's ratio of market value to book value?
Note: Do not round intermediate calculations.
Market-to-book ratio
b. What will be Start-Up's ratio of market value to book value if the firm can earn only a
rate of return of 5% on its investments?
Note: Do not round intermediate calculations. Round your answer to 1 decimal place.
Market-to-book ratio
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