Start-Up Industries is a new firm that has raised $300 million by selling shares

Question

Start-Up Industries is a new firm that has raised $300 million by selling shares of stock. Management plans to earn a 18% 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.

What will be Start-Up

Start-Up Industries is a new firm that has raised $300 million by selling shares of stock. Management plans to earn a 18% 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.

Explanation / Answer

A) ROE 18% Ke 12% D/P 0.5 G (1-payout ratio)*ROE 9% P/B (ROE-g)/(Ke-g) 3 B) ROE 8% G 4% P/B 0.5

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