Firm A has a price-to-sales ratio of 3.9 to 1. Firm B has recently reported sales of $56 million. Firm B also has shares outstanding of 2,500,000. (Use this information to answer the following 2 questions.) What is the price per share of firm B according to the comparable multiples approach?

Question

BlackTom AI · Accepted Answer

Question restatement: Firm A has a price-to-sales (P/S) ratio of 3.9 to 1. Firm B has sales of $56 million and 2,500,000 shares outstanding. Using the comparable multiples approach, what is the price per share of firm B?

Step 1: Understand the P/S multiple concept. The P/S ratio is calculated as market capitalization divided by total sales for a company. If we know the P/S ratio of a comparable firm (Firm A) and the sales of Firm B, we can estimate Firm B's market capitalization using the same multiple.

Step 2: Apply the multiple to Firm B’s sales. Given Firm A’s P/S = 3.9, Firm B’s estimated market capitalization = 3.9 × Firm B’s sales. Firm B’s sales are $56 million, so market cap = 3.9 × $56,000,000 = $218,400,000.

Step 3: Convert market capitalization to price per share. Price per share = Market capitalization ÷ Number of shares outstanding. Firm B has 2,500,000 shares outstanding, so price per share = $218,400,000 ÷ 2,500,000 = $87.36.

Step 4: Address the answer options. The provided answer options are not listed in the prompt, so we derived the numeric result directly from the given data and the comparable multiples method. If options were present, they should include $87.36 as the correct value.

Summary of the calculation flow: P/S derived market cap from Firm B’s sales using the 3.9 multiple → $218.4 million → divide by 2.5 million shares → $87.36 per share.

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