Problem $7-26$ Valuing Businesses $($LO$3)$

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.

Market$-$to$-$book ratio

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.

Market$-$to$-$book ratio