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Stock Valuation at Ragan, Inc 1. Assuming the c...




Stock Valuation at Ragan, Inc 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock? 2. To verify their calculations, Ragan, Inc. has hired an equity analyst familiar with the HVAC industry who has examined Ragan Inc.'s financial statements as well as those of its competitors. Although Ragan, Inc. currently has a technological advantage, the consultant's research indicates that other companies are investigating methods to improve efficiency and the consultant believes that Ragan's technological advantage will only last for the next five years. After that period, the company's growth will likely slow to the industry growth average. Additionally, the consultant believes that the required return used by Ragan, Inc. is too high and that the average required return rate is more appropriate. Under this growth rate assumption, what is your estimate of the stock price? 3. What is the industry price-earnings ratio? What is the price-earnings ratio for Ragan, Inc.? Is this the relationship you would expect between the ratios? Why or why not? 4. Carrington and Genevieve are unsure how to interpret the price-earnings ratio but have come up with the following expression: P0 = 1 - b -- ------------ E1 R - (ROE x b) Beginning with the constant dividend growth model, verify this result. What does this expression imply about the relationship between the dividend payout ratio, the required return on the stock, and the company's ROE? 5. Assume the company's growth rate slows to the industry average in five years. What future return on equity does this imply, assuming a constant payout ratio? 6. After discussing the stock value with the consultant, Genevieve and Carrington agree that they would like to increase the value of the company stock. Like many small business owners, they would like to retain control of the company, but they do not want to sell stock to outside investors. They also feel that the company's debt is at a manageable level and do not want to borrow more money. How can they increase the price of the stock? Are there any conditions under which such an action would not increase the stock price? Explain.,Hi there, Do you think it will be completed by tonight? Thanks!,Hi, I'm not sure about the HVAC piece. I'm not seeing that in the question. Plesae clarify. Thx,Please disregard any specifics for the HVAC aspect. My textbook question is identical to what's posted here, but doesn't mention the HVAC industry. I don't believe it's relevant to the question based on how I'm reading it. However, I just realized you may not have this information that is the opening of the problem: Larissa has been talking with the company's directors about the future of East Cost Yachts. To this point, the company has used outside supliers for various key components of the company's yachts, including engines. Larissa has decided that East Coast Yachts should consider the purchase of an engine manufacturer to allow East Coast Yachts to better integrate its supply chain and get more control over engine features. After investingating several possible companies, Larrissa feels that the purchase of Ragan engines is a possiblity. She has asked Dan Ervin to analyze Ragan's value. Ragan Engines was founded nine years ago by a brother and a sister--Carrington and Genevieve Ragan--and has remained privately owned company. The company manufactureres marine engines for a variety of applications. Ragan has experienced rapid growth because of the proprietary technology that increases fuel efficiency of its negines with very little sacrifice in performance. The company is equally owned by Carrington and Generiveieve. The oringinal agreement between the two siblings gave each 150,000 shares of stock. Larissa has asked Dan to determine a value per share of Ragan stock. To accomplish this, Dan has gathered the following information about some of Ragan's competitors that are publicly traded. (this is the EPS, DPS, etc stuff I sent you yesterday) Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1.97. Last year, Ragan had an EPS of 5.08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate.,Hi there, Do you have all of the information you need at this point? Also, any idea on when you might be able to provide a solution? Thx!


Paper#5599 | Written in 18-Jul-2015

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