Twitter Me, Inc., is a new company and currently has negative earnings. The comp

Question

Twitter Me, Inc., is a new company and currently has negative earnings. The company?s sales are $1,600,000 and there are 140,000 shares outstanding. Requirement 1: If the benchmark price-sales ratio for the company is 5.6, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current stock price $ Requirement 2: If the benchmark price-sales ratio for the company is 5, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current stock price $

Explanation / Answer

Formula for Price Sales Ratio:

Price Per Share/Sales Per Share

Therefore, Price Per Share = Sales Per Share*Per Share*Price-Sales Ratio

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Requirement 1:

Sales Per Share = Net Sales/Shares Outstanding = 1,600,000/140,000 = $11.43

Price Per Share = 11.43*5.6 = $64 (using above formula)

You will Pay $64 for the Stock if Price-Sales Ratio is 5.6.

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Requirement 2:

Sales Per Share = Net Sales/Shares Outstanding = 1,600,000/140,000 = $11.43

Price Per Share = 11.43*5 = $57.14 (using above formula)

You will Pay $57.14 for the Stock if Price-Sales Ratio is 5.6.

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