Question

l cricket LTE 9:27 AM 16 Bookmarks Show all steps: ter 7, Problem 10 STOCK VALUATION AT RAGAN, INC. Ragan, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan, Inc., has experienced rapid 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 stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discounted price. Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered the following information about their main competitors: Expert HVAC Corporation's 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 $.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. - Competiters Stock Div. Price ROE EPS R Arctic $39 $17.83 16.00 % 10.00 % $.84 Cooling, Inc. National Heating & Cooling Expert HVAC Согp. Industry Average 1.34 65 19.23 14.00 13.00 -55 43 18.14 15.00 12.00 $.54 $49 $18.40 15.00 11.67

Answer 1

The formula has been used for finding the stock price is: P = D/(K-g) P = Stock Price, K= Required rate of return, g= Growth rate Firstly, we find the dividend received: • They both received 75000$ as dividend received • They both have 50000 shares. For finding dividend per share we must divide the amount received as dividend/ No. of shares =75000/50000 D=1.5$ per share After finding the dividend, we can go further with above formula; K= 14%, D= 1.5$, g= 11.67% =1.5/(14%-11.67%) =1.5/2.32% P= 64.65$