Question

TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1.45 million and there are 130,000 shares outstanding. a. If the benchmark price-sales ratio is 3.9, what is your estimate of an appropriate stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the benchmark price-sales ratio is 3.2, what is your estimate of an appropriate stock price? (Do not round intermediate calculations and round your answer to 2 decimal

Answer 1

a. $43.50

b. $35.69

Step-by-step explanation:

The computation o the stock price in the following cases is as follows:

Sales per share is

= $1.45 million ÷ 130,000 shares

= $11.15

The Price-Sales ratio is

= Stock price ÷ Sales per share

a.

Stock price

= $11.15 × 3.9

= $43.50

And,

b.Stock price is

= $11.15 × 3.2

= $35.69

The same is to be considered