The founder of Alchemy Products Inc. discovered a way to turn gold into lead and

Question

The founder of Alchemy Products Inc. discovered a way to turn gold into lead and patented this new technology. He then formed a corporation and invested $600,000 in setting up a production plant. He believes that he could sell his patent for $25 million.

a. What is the book value of the firm? (Enter your answer in dollars not in millions.)

b. What is the market value of the firm? (Enter your answer in dollars not in millions.)

c. If there are two million shares of stock in the new corporation, what would be the price per share? (Round your answer to 2 decimal places.)

d. What would be the book value per share? (Round your answer to 2 decimal places.)

Explanation / Answer

Answer a.

Book Value of the firm = Value of Production Plant
Book Value of the firm = $600,000

Answer b.

Market Value of the firm = Value of Production Plant + Value of Patent
Market Value of the firm = $600,000 + $25,000,000
Market Value of the firm = $25,600,000

Answer c.

Price per share = Market Value of the firm / Number of shares
Price per share = $25,600,000 / 2,000,000
Price per share = $12.80

Answer d.

Book Value per share = Book Value of the firm / Number of shares
Book Value per share = $600,000 / 2,000,000
Book Value per share = $0.30

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