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What will be start-ups ratio of market value to book value

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?

b. How would that ratio change if the firm can earn only a 10% rate of return on its investments?

Amount raised ...... $200.00 million

Return on equity..... 24.00%

Rate of return...... 15.00%

Plowback ratio........ 50.00%

Rate on equity (b) .... 10.00%

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