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TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1,500,000 and there are 135,000 shares outstanding.
a. If the benchmark price-sales ratio for the company is 5.5, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. If the benchmark price-sales ratio for the company is 4.9, how much will you pay for the stock?

Respuesta :

Answer:

(a) $61.11

(b) $54.44

Explanation:

1)

Value of Stock = Benchmark price-sales ratio × Stock's sales

                          =  5.5 × 1,500,000

                         = $8,250,000

Thus,

Price of stock = Value of Stock ÷ shares outstanding

                       = 8,250,000 ÷ 135,000

                       = $61.11

Thus, I would pay $61.11 for the stock.

2)

Value of Stock = Benchmark price-sales ratio × Stock's sales

                          =  4.9 × 1,500,000

                         = $7,350,000

Thus,

Price of stock = Value of Stock ÷ shares outstanding

                       = $7,350,000 ÷ 135,000

                       = $54.44

Thus, I would pay $54.44 for the stock.

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