Rise Above This has sales per share of 2011 that is expected

Rise Above This has sales per share of $20.11 that is expected to grow at 4.7 percent per year. The PS ratio is 173 times. What is the projected stock price in 6 years O $45.83 O $46.91 O $4798 O $4143 O $43.77

Solution

PS Ratio = Price per Share/Sales per share

1.73 = Price per Share/20.11

Price per Share = 34.79

This stock price is projected to grow at 4.7% per year. Using the basic time value of money function, according to which: FV = PV * (1 + r)ⁿ

FV = 34.79 * (1 + 4.7%)⁶

FV = 34.79 * 1.3173

FV = $45.83 --> Answer