'Finance stock valuation Essay\r'

'Ragan, Inc., was founded night club years ago by br some other and sis Carrington and Genevieve Ragan. The guild manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced rapid growth because of a proprietary technology that increases the capacity efficiency of its units. The fellowship is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave individually 50,000 shares of gift a bun in the oven. In the event either wished to sell stock, the shares beginning(a) had to be offered to the other at a discounted price.\r\nAlthough uncomplete sibling wants to sell, they have decided they should value their holdings in the caller-out. To get started, they have gathered the following teaching about their main competitors:\r\n skillful HVAC Corpo proportionalityn’s negative earnings per share were the result of an write up write-off last year. Without the write-off, earnings per share for the company would have been $0.54.\r\nLast year, Ragan, Inc., had an EPS of $4.85 and paid a dividend to Carrington and Genevieve of $75,000 each. The company also had a double back on rectitude of 17 percent. The siblings believe that 14 percent is an capture necessitate call up for the company.\r\nRagan, Inc. †Competitors\r\nCompanyEPSDiv.Stock PriceROER\r\nArctic Cooling0.840.3917.8316.00%10.00%\r\nNational Heating1.340.6519.2314.00%13.00%\r\nExpert HVAC-0.550.4318.1415.00%12.00%\r\nIndustry Average0.540.4918.4015.00%11.67%\r\nQuestions\r\n1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock?\r\nSOLUTION:\r\nTotal dividend= (75000Ã2) = $150000\r\nTotal earning= (50000Ã4.85) = $242500\r\nPayout ratio= 150000/242500= .62\r\n belongings ratio= (1-.62) = .38\r\ng= ROExb= .17x.38= .065 or 6.5%\r\nD0= 75000/50000=1.5\r\nP0= D1/(Ke-g)= (1.5Ã1.14)/(.14-.065)= $22.8\r\n2. To verify their ca lculations, Carrington and Genevieve have haired tantalise Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh had examined the company’s financial statements, as well as those of its competitors. Although Ragan, Inc., currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company’s technological advantage forget last only for the next five years. afterwards that period, the company’s growth will belike slow to the industry growth average. Additionally, Josh believes that the required return used by the company is to a fault high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your number of the stock price?\r\nSOLUTION:\r\nIndustry EPS= (.84+1.43+.54)/3= .91\r\nIndustry Payout ratio= .49/.91= .54\r\nIndustry retention ratio= 1-. 54= .46\r\ng= 15x.46= 6.9%\r\nD6= 1.5Ã1.14^6= 3.2925\r\nStock price in year 5 with the Industry rate of return\r\n= 3.2925/ (.1167-.069) = $69.02\r\n'