Question

Z Corp currently has a price-to-sales ratio of 5. You believe that its price-to-sales ratio should be 6. If you expect future sales per share to be 20 and future earnings per share to be 4.50, what is your target price of Z Corp using the price-to-sales ratio?

Answer 1

The target price using the price to sales ratio is 20.

Step-by-step explanation:

Current price to sales ratio is
`c_(p/s)=` 5.

The target price to sales ratio is
`f_(p/s)=`6.

Future sales per share is
`f_s=`20.

`f_( p/s)=(price)/(sale)\\f_( p/s)=c_( p/s)+(price)/(sale)\\6=5+(price)/(20)\\(price)/(20)=6-5\\(price)/(20)=1* 20\\price=20\\`

The target price using the price to sales ratio is 20.