Answer: 0.67

## Explanation To calculate the justified price-to-sales (P/S) ratio, we use the formula: \[ P/S = \frac{E_0}{S_0} \times \frac{(1 - b)(1 + g)}{r - g} \] Where: - \( E_0/S_0 \) = Profit margin = 10% = 0.10 - \( b \) = Retention rate = 40% = 0.40 - \( g \) = Growth rate = 5% = 0.05 - \( r \) = Required rate of return = 15% = 0.15 First, calculate the dividend payout ratio: \[ 1 - b = 1 - 0.40 = 0.60 \] Now substitute into the formula: \[ P/S = 0.10 \times \frac{0.60 \times (1 + 0.05)}{0.15 - 0.05} \] \[ P/S = 0.10 \times \frac{0.60 \times 1.05}{0.10} \] \[ P/S = 0.10 \times \frac{0.63}{0.10} \] \[ P/S = 0.10 \times 6.3 = 0.63 \] The justified P/S ratio is approximately 0.63, which is closest to 0.67 among the given options. Note: The WACC of 14% is not used in this calculation as the required rate of return is given as 15%.

Author: LeetQuiz Editorial Team