Answered

erna company is expected to pay a dividend of $2.69 one year from today and $2.84 two years from today. the company's sales in two years are expected to be $16,150,000. the company has a ps ratio of 1.87 times, and 528,500 shares outstanding. if the required return on the company's stock is 11.8 percent, what is the current stock price?



Answer :

50.40 is the current stock price for the erna company which is mentioned

given data

pay a dividend 1 year D1 = $2.69

pay a dividend 2 year D2  = $2.84

sales in 2 years expected =  $16,150,000

price/ sale PS ratio = 1.87

shares outstanding = 528500

company stock r = 11.8 percent

solution

first we get here sales per share will be

sales per share = 16,150,000/528500

sales per share =  30.56

so here P2 is = sales per share × PS ratio

P2  = 30.56 × 1.87

P2  = 57.15

so here current stock price will be D1/(1+r)+D2/(1+r)^2+P2/(1+r)^2....1

current stock price =    2.69/(1+0.118)+2.84/(1+0.118)^2+57.15/(1+0.118)^2

put here value we get

current stock price = 50.40

To know more about the current stock calculation visit here :

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