Z Space, Incorporated, is a new company and currently has negative earnings. The company's sales are $2.7 million and there are 175,000 shares outstanding. a. If the benchmark price-sales ratio is 4.3, 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 3.6? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Stock price if price-sales is 4.3 b. Stock price if price-sales is 3.6
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
![---
**Z Space, Incorporated Financial Analysis Exercise**
**Overview:**
Z Space, Incorporated, is a new company and currently has negative earnings. The company's sales are $2.7 million and there are 175,000 shares outstanding.
**Questions:**
a. **If the benchmark price-sales ratio is 4.3, 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 3.6?**
*(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)*
**Answer Boxes:**
- **a. Stock price if price-sales is 4.3:** [ ]
- **b. Stock price if price-sales is 3.6:** [ ]
---
**Instructions for Calculation:**
1. **Calculate Stock Price:**
- The stock price can be estimated using the formula:
\[
\text{Stock Price} = \left( \frac{\text{Sales}}{\text{Shares Outstanding}} \right) \times \text{Price-Sales Ratio}
\]
2. **For Question a (Price-Sales Ratio = 4.3):**
- Use the sales of $2.7 million and 175,000 shares outstanding.
- Calculate the per-share sales by dividing the total sales by the number of shares.
- Multiply the per-share sales by the price-sales ratio of 4.3.
3. **For Question b (Price-Sales Ratio = 3.6):**
- Repeat the above calculation with the different price-sales ratio of 3.6.
By following these steps, you will be able to estimate the appropriate stock price for Z Space, Incorporated, under different benchmark price-sales ratios.
---
This exercise provides practical experience in financial ratio analysis and helps in understanding how stock prices can be estimated based on sales and shares outstanding.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fae8a11bd-ad7f-47d8-a5c8-89ea0daeecfe%2F3b1bcdd1-f6a5-4245-b2d8-5edde038eca6%2F561lkiv_processed.jpeg&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
