Problem 7-26 Valuing Businesses (LO3)Start-Up Industries is a new firm that has raised $360 million by selling shares ofstock.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 reinvestedin 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 ratiob. What will be Start-Up's ratio of market value to book value if the firm can earn only arate of return of 5% on its investments?Note: Do not round intermediate calculations. Round your answer to 1 decimal place.Market-to-book ratio

The market to book value ratio is also known as price to book ratio. It is used to ascertain current…

Answered: Start-Up Industries is a new firm that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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13. Start-up Industries is a new firm, which has raised $100 million by selling shares of stock. Management expects to earn a 24% 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? b. How would that ratio change if the firm can earn only a 10% rate of return on its investments? (Round your answer to 1 decimal place.)
Problem 5 (DuPont and ROE) A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are P100 million, and it has total assets of P50 million. What is its ROE?
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You've collected the following information about Molino, Inc. 190,000 Sales Net income $13,600 Dividends 8,800 bt $ 76,000 60,000 Total equity a. What is the sustainable growth rate for the company? (Do not round intermediate b. If it does grow at this rate, how much new borrowing will take place in the coming c. What growth rate could be supported with no outside financing at all? (Do not round calculations and enter your answer as a percent rounded to 2 decimal places, e.g, 3216.) year, assuming a constant debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. a. Sustainable growth rate b. Additional borrowing c. Internal growth rate 8.69 )% 6,600.92 3.65 196
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Problem 3: Use the constant-growth model (Gordon model) to find the value of the firm shown in t following table: Dividend expected next year Dividend growth rate Required return $1.24 7.3% 13.3% Problem 4: Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering. managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.The firm's weighted average cost of capital is 15%, and it has a $1.760,000 of
Problem 7-35 Valuing Businesses.(LO3) Consider the table given below to answer the following question. Year Asset value Earnings Net investment Free cash flow Return on equity Asset growth rate Earnings growth rate 1 10.00 1.20 Present value 1.20 0.00 0.12 0.12 2 11.20 1.34 1.34 0.00 0.12 0.12 0.12 3 12.54 million 1.51 1.51 0.00 0.12 0.12 0.12 4 5 14.05 15.31 1.84 1.38 0.46 0.12 0.09 0.09 1.69 1.26 0.42 0.12 0.09 0.12 6 16.69 2.00 1.50 0.50 0.12 0.09 0.09 10 7 8 18.19 19.29 2.18 21.67 2.31 2.60 1.09 1.16 1.30 1.09 1.16 1.30 0.12 0.12 0.12 0.12 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.09 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 9 20.44 2.45 1.23 1.23
mange P10-1 (similar to) Question Help ▼ (Measuring growth) If Pepperdine, Inc.'s return on equity is 19 percent and the management plans to retain 55 percent of earnings for investment purposes, what will be the firm's growth rate? The firm's growth rate will be %. (Round to two decimal places.) Worked ent Scor mpts: Question jestion 4 Question jestion 8 Question s course (Busin ms of Use Priv Enter your answer in the answer box and then click Check Answer. Check Answer Clear All All parts showing (8

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