A firm has a justified price-to-sales ratio of 2.0 times, a net profit margin of 5%, and a long-term growth rate of 4%. The justified leading P/E is *closest* to:

A. 34.8.

B. 38.5.

c. 40.0.

A firm has a justified price-to-sales ratio of 2.0 times, a net profit margin of 5%, and a long-term growth rate of 4%. The justified leading P/E is *closest* to:

A. 34.8.

B. 38.5.

c. 40.0.

on the shitter without a calculator. trailing is 40 so leading should be B.

dreary with all these heads up review you are doing, you are going to score 100% on equity.

heres my take on this problem.

p/s = 2.

p/e =

net profit margin = eps / sales = .05

so you have eps / sales = .05 and price / sales = 2.

so just do price / sales * sales / eps = 2 * 1/.05 = 40. this is trailing pe.

trailing = leading * 1 + g

so leading = 40 / 1.04

38.5 B

iyou can derive it with the P/S formula which is : E/S * Leading P/E * ( 1+g )

2/0.05/1.04 = 38.5

B

Price-to-sales ratio = E/S*(1+g)(1-b)

r-g

= E/S*(1+g)*Justified leading P/E

2 = 0.05*1.04*Justified leading P/E

2 = 0.052*Justified leading P/E

2/0.052 = 38.46 = 38.5 = Justified leading P/E