Question

The current price of Parador Industries stock is $84 per share. Current sales per share are $15.40, the sales growth rate is 8.5 percent, and Parador does not pay a dividend. The expected return on Parador stock is 15 percent.

a. Calculate the sales per share one year ahead. (Round your answer to 2 decimal places.)

b. Calculate the P/S ratio one year ahead.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

a. The sales per share is computed as follows:

= current sales per share x (1 + growth rate)

= $ 15.40 x 1.085

= $ 16.709 or $ 16.71 Approximately

b. P/S ratio is computed as follows:

= current price x (1 + expected return) / Sale per share computed in part a above

= ($ 84 x 1.15) / $ 16.709

= 5.78 Approximately