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?
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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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
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
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