Rise Above This has sales per share of 2019 that is expected

Rise Above This has sales per share of $20.19 that is expected to grow at 4.9 percent per year. The PS ratio is 1.77 times. What is the projected stock price in 4 years?

$39.03

$41.25

$44.33

$45.39

$43.27

Solution

The Correct answer is $43.27

PS ratio or Price-Sales ratio is stated as Price per share / Sales per share.

Step 1 - Calculation of Current Price of Share

PS ratio = Price per share / Sales per share

1.77 = Price per share / $20.19

Price per share = $35.7363

Step 2 - Calculation of projected stock price in 4 years

= Current Stock Price * ( 1 + g)ⁿ

where g is the growth rate and n is the number of years

= $35.7363 * (1+0.049)⁴

= $35.7363 * (1.049)⁴

= $35.7363 * 1.2109

= $43.2731

Rounding to two decimal places

= $43.27

Therefore projected stock price in 4 years is $43.27