Question

Twitterme, inc., is a new company and currently has negative earnings. the company's sales are $2,300,000 and there are 170,000 shares outstanding. if the benchmark price–sales ratio for the company is 4.4, 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.) current stock price $ if the benchmark price–sales ratio for the company is 3.8, 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.) current stock price $

Answer 1

Given:
company's sales are $2,300,000
170,000 shares outstanding.
if the benchmark price–sales ratio for the company is 4.4, how much will you pay for the stock?
if the benchmark price–sales ratio for the company is 3.8, how much will you pay for the stock?

Sales per share = Sales / Shares outstanding
Sales per share = 2,300,000 / 170,000
Sales per share = 13.529 or 13.53

Price per share with PS ratio

P = Benchmark PS ratio * Sales per share
P = 4.4 * 13.53
P = $59.53

P = 3.8 * 13.53
P = $51.41

If the PS ratio of the company is 4.4, I'll pay $59.53 per share.
If the PS ratio of the company is 3.8, I'll pay $51.41 per share.