Start-Up Industries is a new firm that has raised $400 million by selling shares of stock.Management plans to earn a 20% rate of return on equity, which is more than the 12% 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. Answer is complete but not entirely correct. Market-to-book ratio 20 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 8% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal place. Answer is complete but not entirely correct. Market-to-book ratio (1.8)
Start-Up Industries is a new firm that has raised $400 million by selling shares of stock.Management plans to earn a 20% rate of return on equity, which is more than the 12% 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. Answer is complete but not entirely correct. Market-to-book ratio 20 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 8% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal place. Answer is complete but not entirely correct. Market-to-book ratio (1.8)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Start-Up Industries is a new firm that has raised $400 million by selling shares of stock Management plans to earn a 20% rate of return
on equity, which is more than the 12% 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.
Answer is complete but not entirely correct.
Market-to-book ratio
20
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 8% on its investments?
Note: Do not round intermediate calculations. Round your answer to 1 decimal place.
ⒸAnswer is complete but not entirely correct.
Market-to-book ratio
(1.8)
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