Stock value using PS ratio to estimate selling price An investor is going to buy stock, collect dividend payments for five years, then sell the stock. The investor demands a certain percent return on investment. Based on the following details, what is the maximum price the investor should be willing to pay for this stock? Scenario A common stock: • Dividend expected at end of first year = $1.00 Expected growth rate of dividends = 12% until end of year 5 - Revenue $30 million at end of year 5 Shares outstanding = 1,000,000 shares PS (Price to Sales) ratio expected at end of year 5 = 0.5 times Required rate of return = 10% O Selling price = - at end of year 5
Stock value using PS ratio to estimate selling price An investor is going to buy stock, collect dividend payments for five years, then sell the stock. The investor demands a certain percent return on investment. Based on the following details, what is the maximum price the investor should be willing to pay for this stock? Scenario A common stock: • Dividend expected at end of first year = $1.00 Expected growth rate of dividends = 12% until end of year 5 - Revenue $30 million at end of year 5 Shares outstanding = 1,000,000 shares PS (Price to Sales) ratio expected at end of year 5 = 0.5 times Required rate of return = 10% O Selling price = - at end of year 5
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 3P
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Question
Transcribed Image Text:Stock value using PS ratio to estimate selling price
An investor is going to buy stock, collect dividend payments for five years, then sell the stock. The
investor demands a certain percent return on investment. Based on the following details, what is the
maximum price the investor should be willing to pay for this stock?
Scenario A common stock:
•
Dividend expected at end of first year = $1.00
Expected growth rate of dividends = 12% until end of year 5
-
Revenue $30 million at end of year 5
Shares outstanding = 1,000,000 shares
PS (Price to Sales) ratio expected at end of year 5 = 0.5 times
Required rate of return = 10%
O
Selling price =
-
at end of year 5
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