Question
A newly listed firm has raised $200 million by selling shares of stock. Management expects to earn a 20 percent rate of return on equity,
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A newly listed firm has raised $200 million by selling shares of stock. Management expects to earn a 20 percent rate of return on equity, which is more than the 12 percent rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm.
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What will be the new firms ratio of market value to book value?
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How would that ratio change if the firm can earn only a 10 percent rate of return on its investments?
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Financial Markets And Institutions
Authors: Jeff Madura
13th Edition
0357130790, 978-0357130797
