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Problem 7-26 Valuing Businesses (LO3) Start-Up Industries is a new firm that has raised $400 million by selling shares of stock.Management plans to earn a

Problem 7-26 Valuing Businesses (LO3) 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-Ups ratio of market value to book value?

b.) What will be Start-Ups ratio of market value to book value if the firm can earn only a rate of return of 8% on its investments?

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