Finance stock valuation Essay

Ragan, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The fellowship manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experience rapid growth because of a proprietary technology that increases the energy susceptibility of its units. The lodge is equally owned by Carrington and Genevieve. The original partnership musical arrangement between the siblings gave each 50,000 shargons of stock. In the event either wished to sell stock, the shares offset had to be offered to the other at a discounted price.Although neither sibling wants to sell, they make suppose decided they should comfort their holdings in the company. To get started, they bring on gathered the chase information about their main competitorsExpert HVAC Corpo dimensionns negative mesh 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.Last 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 return on equity 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% subject area 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? resultant replete(p) 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 psychoanalyst and covered the HV AC constancy. Josh had examined the companys financial statements, as healthy as those of its competitors. Although Ragan, Inc., currently has a expert advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the companys technological advantage will last only for the next five years. later that period, the companys growth will likely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry average required return is more than appropriate. Under this growth rate assumption, what is your estimate 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