Question

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

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 $3,300,000 in setting up a production plant. He believes that he could sell his patent for $75 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 book value per share? (Round your answer to 2 decimal places.)

d. 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.)

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Homework Answers

Answer #1

a) Book value means value that is being recorded in books of account.Book value of firm is equal to amount invested in setting up a production plant and thus book value = $3,300,000

b) Market value of firm is equal to value that is realise if one sells the asset in market. Thus market value of firm = Selling price of patent + cost of production plant

=$75,000,000 + $3,300,000

=$ 78,300,000

c) Book value per share = Book value of firm/No. of shares

= 3300000/2000000

=1.65 $

d) Market value of share = Market value of firm / No. of shares

= 78,300,000/2000000

=39.15 $

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