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 $1,500,000 in setting up a production plant. He believes that he could sell his patent for $75 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

Answer: See explanation

Explanation:

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

The book value will be the amount of money that Alchemy invested which will be $1,500,000.

Market value = Value of patent + Value of production plant

= $75 million + $1,500,000

= $76.5 million

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?

Price per share = Market value / Number of shares

= $76.5 million / 1 million

= $76.5 per share

Book value per share = Book value / Number of shares

= $1.5million/ 1 million

= $1.5 per share