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TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1.5...

TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $1.5 million and there are 120,000 shares outstanding. a. If the benchmark price-sales ratio is 4.0, 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. What if the price-sales ratio were 3.4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Answer #1

a. Sales per share = Sales / Shares outstanding

Sales per share = $1,500,000 / 120,000

Sales per share = $12.50

P = Benchmark PS ratio × Sales per share

P = 4.0 × $12.50

P = $50.00

b. P = 3.4 × $12.50

P = $42.50

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