Problem 7-26 Valuing Businesses (LO3)Start-Up Industries is a new firm that has raised $360 million by selling shares ofstock.Management plans to earn a 20% 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 reinvestedin the firm.a. What will be Start-Up's ratio of market value to book value?Note: Do not round intermediate calculations.Market-to-book ratiob. What will be Start-Up's ratio of market value to book value if the firm can earn only arate of return of 5% on its investments?Note: Do not round intermediate calculations. Round your answer to 1 decimal place.Market-to-book ratio

The market to book value ratio is also known as price to book ratio. It is used to ascertain current…

Answered: Start-Up Industries is a new firm that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

1- Determine the value of a company using the following data:Valuation interest 0.06%,Earnings per share of 350 euros,Share price 6000 euros. Do you think this company has growth potential? Would your answer change if the profit was 200?
Can you show me using excel calculations please?
The Farmer Co. has a payout ratio of 65% and a return on equity (ROE) of 16% (assume that this is expected ROE for the upcoming year). What will be the appropriate price-to-book value (PBV) based on return differential if the expected growth rate in dividends is 5.6% and the required rate of return is 13% ?
Stormy Weather has no attractive investment opportunities. It's return on equity equals the discount rate, which is 10%. It's expected earnings this year are $3 per share. Complete the following table.
3. The average net profits expected in future by Khalifa and Co. are RO. 30,000 per year. The average capital employed in the business by firm is RO. 200,000. The normal rate of return on the capital employed in similar business is 10%. Calculate good will of the firm by: 1. Super Profit Method on the basis of two-year purchase 2. Capitalization Method
Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the internal rate of return to: (i) Senior Debt Investors; (ii) Mezzanine Debt Investors; (iii) Equity Investors?
A company has current, trailing earnings of 3.2 per share. The company plans to plowback 0.41, a share of the earnings, at an ROE of 0.084. If the required rate of return is 0.095, what is the present value of the firm's growth opportunities? O -2.47 -2.60 -2.74 -2.37 -2.85
Suppose the Earnings Multiple of the comparable firms is 10.5 and the next year projected net income of Firm X is $990 million, what is the terminal value for Firm X based on the earnings multiple approach? O a. $9812 O b. $10395 O c. $12945 O d. $12815
S. Bouchard and Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: DO $0.85; PO $22.00; and g 6.00% (constant). The CEO thinks, however, that the stock price is temporanly depressed, and that it will soon rise to $34.00. Based on the DCF approach, by how much would the cost of common from retained earnings change if the stock price changes as the CEO expects?.
Holt Enterprises recently paid a dividend, Do, of $4,00. It expects to have a nonconstant growth of 16% for 2 years followed by a consent rate of 8% thereafter. The firm's required return is 20%. I know this answer was $48.44. I need help with the last part below. What is the firm's intrinsic value today, P0? Do not round intermediate calculations. Round your answer to the nearest cent.
An insurance company’s projected loss ratio is 79.53 percent, and its loss adjustment expense ratio is 7.51 percent. It estimates that commission payments and dividends to policyholders will add another 13.96 percent. What is the minimum yield on investments required in order to maintain a positive operating ratio? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
Tinsley, Incorporated, wishes to maintain a growth rate of 16.25 percent per year and a debt-equity ratio of .95. The profit margin is 4.7 percent, and total asset turnover is constant at 1.07. a. What is the dividend payout ratio? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the maximum sustainable growth rate for this company? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Dividend payout ratio b. Sustainable growth rate % %

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