Question
Start-Up Industries is a new firm that has raised $290 million by selling shares of stock. Management plans to earn a rate of return on
Start-Up Industries is a new firm that has raised $290 million by selling shares of stock. Management plans to earn a rate of return on equity of 20%, 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? (Do not round intermediate calculations.) 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? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
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