Question

The current price of Parador Industries stock is $44 per share. Current sales per share are $21.35, the sales growth rate is 4 percent, and Parador does not pay a dividend. The expected return on Parador stock is 13 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

Given

Current Share Price (P₀): $ 44

Sales growth rate (g) : 4 %

Expected retrun on stock: 13 %

Answer a.

Sales per share one year ahead:

= (Sales of current year) + (Sales of Current year * g)

= 21.35 + 21.35*0.04

= $ 22.20

Answer b.

Market Price of share one year ahead = Current Market Price + Earnings of current year

= (44) + (44*13%)

= 49.72

Sales for next year = $ 22.20 (As computed above)

P/S = { Market Price of a share/ Sales per share}

= 49.72 / 22.20

= 2.24 : 1