Start-Up Industries is a new firm that has raised $280 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?