Question

TwitterMe, 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.

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 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 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.)
  
Current stock price            $

Answer 1

Sales = $1,600,000
Number of shares outstanding = 140,000

Sales per share = Sales / Number of shares outstanding
Sales per share = $1,600,000 / 140,000
Sales per share = $11.4286

Answer a.

Sales per share = $11.4286
Price-sales Ratio = 5.60

Current Stock Price = Sales per share * Price-sales Ratio
Current Stock Price = $11.4286 * 5.60
Current Stock Price = $64.00

Answer b.

Sales per share = $11.4286
Price-sales Ratio = 5.00

Current Stock Price = Sales per share * Price-sales Ratio
Current Stock Price = $11.4286 * 5.00
Current Stock Price = $57.14