Finance stock valuation Essay

Ragan, Inc., was founded cabaret years ago by br other(a) and sister Carrington and Genevieve Ragan. The fellowship manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced speedy growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of old-hat. In the event either wished to sell stock, the shares archetypical had to be offered to the other at a discounted price.Although neither sibling wants to sell, they energise decided they should value their holdings in the company. To get started, they have gathered the following information about their main competitors full HVAC Corpoproportionns negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $0.54.L ast 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 precipitate on fair-mindedness of 17 percent. The siblings believe that 14 percent is an appropriate required return for the company.Ragan, Inc. CompetitorsCompanyEPSDiv.Stock PriceROERArctic Cooling0.840.3917.8316.00%10.00%National Heating1.340.6519.2314.00%13.00%Expert HVAC-0.550.4318.1415.00%12.00%Industry Average0.540.4918.4015.00%11.67%Questions1. Assuming the company continues its current growth rate, what is the value per share of the companys stock?SOLUTIONTotal dividend= (750002) = $150000Total earning= (500004.85) = $242500Payout ratio= 150000/242500= .62Retention ratio= (1-.62) = .38g= ROExb= .17x.38= .065 or 6.5%D0= 75000/50000=1.5P0= D1/(Ke-g)= (1.51.14)/(.14-.065)= $22.82. To verify their calculations, Carrington and Genevieve have haired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry . Josh had examined the companys 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 companys technological advantage go forth last only for the next five years. After that period, the companys growth will apparent slow to the industry growth average. Additionally, Josh believes that the required return used by the company is similarly high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your picture of the stock price?SOLUTIONIndustry EPS= (.84+1.43+.54)/3= .91Industry Payout ratio= .49/.91= .54Industry retention ratio= 1-.54= .46g= 15x.46= 6.9%D6= 1.51.146= 3.2925Stock price in year 5 with the Industry rate of return= 3.2925/ (.1167-.069) = $69.02