Erna company is expected to pay a dividend of $2.41 one year from today and $2.56 two years from today. the company's sales in two years are expected to be $15,450,000. the company has a ps ratio of 1.59 times, and 521,500 shares outstanding. if the required return on the company's stock is 10.4 percent, what is the current stock price? a. 5.52b. 4.28c. 38.65d. 42.93

so correct answer is d. 42.93

Explanation:

given data

pay a dividend 1 year D1 = $2.41

pay a dividend 2 year D2  = $2.56

sales in 2 years expected =  $15,450,000

price/ sale PS ratio = 1.59

shares outstanding = 521500

company stock r = 10.4 percent

solution

first we get here sales per share will be

sales per share =

sales per share =  29.63

so here P2 is = sales per share × PS ratio

P2  = 29.63 × 1.59

P2  = 47.11

so here current stock price will be

current stock price =   ...................1

put here value we get

current stock price =

current stock price =  42.93

so correct answer is d. 42.93

answernet income for 2017 will be greater if the inventory quantity declines;