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Start-Up Industries is a new firm that has raised $200 million by selling shares of stock.
Start-Up Industries is a new firm that has raised $200 million by selling shares of stock. Management plans to earn a 24% rate of return on equity, which is more than the 15% 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? (Do not round intermediate calculations.)
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 10% on its investments? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
