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 $200,000 in setting up a production plant. He believes that he could sell his patent for $50 million. a. What is the book value of the firm? (Enter your answer in dollars.) b. What is the market value of the firm? (Enter your answer in dollars not in millions.) c. If there are 2 million shares of stock in the new corporation, what is the book value per share? (Round your answer to 2 decimal places.) d. What is the price per share? (Round your answer to 2 decimal places.)

Answer 1

(A) $200,000

(B) $50,200,000

(C) $0.10 per share

(D) $25.10 per share

Step-by-step explanation:

(A) The book value of the firm is $200,000

(B) The market value of the firm can be calculated as follows

= $200,000 + 50,000,000

= $50,200,000

(C) The book value per share can be calculated as follows

= 200,000/2,000,000

= $0.10 per share

(D) The price per share can be calculated as follows

= 50,200,000/2,000,000

= $25.10 per share