Start-Up Industries is a new firm that has raised $200 million by selling shares of stock.

Management plans 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 itsinvestments?

Amount raised......$200.00 million

Return on equity.....24.00%

Rate of return......15.00%

Plowback ratio........50.00%

Rate on equity (b) ....10.00%