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 are the book value and market value of the firm?
b. If there are 1 million shares of stock in the new corporation, what would be the price per share and the book value per share?

Answer 1

Step-by-step explanation:

a. What are the book value and market value of the firm?

The book value is $200,000 which is the amount invested in setting up the production plant.

The market value of the firm is the addition of the book value and the patent. This will be:

= $50,000,000 + $200,000

= $50,200,000

b. If there are 1 million shares of stock in the new corporation, what would be the price per share and the book value per share?

The book value per share is the book value divided by the outstanding shares. This will be:

= $200,000/1,000,000

= $0.2 pee share

Price per share will be:

= $50,200,000/1,000,000

= $50.2