# 4 Answer Instructions #1 Answer #2 Answer #3 Answer #5 Answer Week 6 Case Study Instructions You should use the Excel Template provided to answer the five questions in this case. Each question should be answered in its own answer tab included in the template. Please read through cach question carefully. Please show your work for each of the problems. Use formulas whenever possible and link numbers to cells within your formulas instead of typing in the numbers. This will allow me to follow your work and thought process, and will reduce the likelihood of errors based on typos. The highlighted areas within each answer key should be completed/contain your answers. If you do not show your work for any part of a question then you will receive a zero for that part of the question. Answers should be rounded to at 3 decimal points and at least 3 significant digits. Background information Anna has been talking with the company's directors about the future of Frentheway Farm Equipment (FFE). The company has been using outside suppliers for various key components of the company's farm equipment, including engines. Anna has decided that FFE should consider the purchase of an engine manufacturer to allow FFE to better integrate its supply chain and get more control over engine features. After investigating several possible companies, Anna feels that the purchase of Mantz Engines Inc (MEI), is a possibility. She has asked Aiden Camey to analyze Mantz's value. Mantz Engines, Ine., is a privately owned company that was founded seven years ago by Sydney and Claire Mantz. The company manufacturers farm engines used primarily in farm equipment. Mantz has experienced rapid growth because of a proprietary technology that increases the fuel efficiency of its engines with very little sacrifice in performance. The company is equally owned by Sydney and Claire Mantz. The original agreement between the siblings gave each 200,000 shares of stock. The Mantz's have not issued any additional stock nor have they sold any of their stock since founding the company. Anna has asked Aiden to determine a value per share of Mantz stock. manufacturing firms that are publicly traded. Aiden has gathered the following information about engine EPS DPS STOCK PRICE ROE ROA Jensen Motors Corp. Blue Cow Farm Engines Inc. Horrocks Farm Equipment 3.5 37 12.00% 9.00% 15.00% 11.00% 4 90 -0.5 16.00% 13.00% 30 Horrocks Farm Equipment's negative camings per share (EPS) was the result of an accounting write-off last year. Without the write- off, EPS for the company would have been $2.25. Last year, Mantz Engines Inc (MEI) had an EPs of $4.00 and paid a dividend to Sydney and Claire Mantz of $300,000 each. The company also had a return on equity of 16%. Anna tells Aiden that a 14% required rate of retum should be used to evaluate the value of Mantz. DPS - Dividends per share 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock? (Do not round intermediate caleulations) a. What is the company's total earnings? b. What are the company's payout and retention ratios? Payout Ratio= Retention Ratio- c. Using the retention ratio, calculate the company's growth rate. d. Now you can value the company using the entire dividend payment. The total value of the company's equity under these assumptions is: e. What is the value per share based on your response to part d? 2. Aiden has examined the company's financial statements, as well as examining those of its competitors. Although Mantz currently has a technological advantage, Aiden's research indicates that Mantz's competitors are investigating other methods to improve efficieney. Given this, Aiden believes that Mantz's technological advantage will last only for the next five years. After that period, the company's growth will likely slow to the industry average. Additionally. Aiden believes the industry average required return is more appropriate. Under Aiden's assumptions, what is the estimated stock price? (Do not round intermediate caleulations) a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information Average Industry Growth Rate - b. Calculate the Dividends for Mantz for each of the next 6 years e. What is the value of the stock today and what is the value per share? # 1 Answer # 2 Answer # 4 Answer Instructions #3 Answer #5 Answer 3. What is the industry average price-earnings ratio? What is Mantz's price-earnings ratio? Comment on any differences and explain why they may exist. Industry PE Original Mantz PE Revised Assumptions Mantz PE Comment on any differences and why they may exist: # 1 Answer # 4 Answer Instructions # 2 Answer # 3 Answer #5 Answer 4. Assume the company's growth rate slows to the industry average in five years. What future return on equity does this imply? Future ROE # 1 Answer # 4 Answer Instructions #2 Answer # 3 Answer #5 Answer 5. Sydney and Claire Mantz are not sure if they should sell the company. If they de not sell the eompany outright to Frentheway Farm Equipment, they would like to try and inerease the value of the company's steck. In this case, they want to retain control of the company and do not want to sell stock to outside investors. They also feel that the company's debt is at a manageable level and de not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price? # 4 Answer Instructions #1 Answer #2 Answer #3 Answer #5 Answer Week 6 Case Study Instructions You should use the Excel Template provided to answer the five questions in this case. Each question should be answered in its own answer tab included in the template. Please read through cach question carefully. Please show your work for each of the problems. Use formulas whenever possible and link numbers to cells within your formulas instead of typing in the numbers. This will allow me to follow your work and thought process, and will reduce the likelihood of errors based on typos. The highlighted areas within each answer key should be completed/contain your answers. If you do not show your work for any part of a question then you will receive a zero for that part of the question. Answers should be rounded to at 3 decimal points and at least 3 significant digits. Background information Anna has been talking with the company's directors about the future of Frentheway Farm Equipment (FFE). The company has been using outside suppliers for various key components of the company's farm equipment, including engines. Anna has decided that FFE should consider the purchase of an engine manufacturer to allow FFE to better integrate its supply chain and get more control over engine features. After investigating several possible companies, Anna feels that the purchase of Mantz Engines Inc (MEI), is a possibility. She has asked Aiden Camey to analyze Mantz's value. Mantz Engines, Ine., is a privately owned company that was founded seven years ago by Sydney and Claire Mantz. The company manufacturers farm engines used primarily in farm equipment. Mantz has experienced rapid growth because of a proprietary technology that increases the fuel efficiency of its engines with very little sacrifice in performance. The company is equally owned by Sydney and Claire Mantz. The original agreement between the siblings gave each 200,000 shares of stock. The Mantz's have not issued any additional stock nor have they sold any of their stock since founding the company. Anna has asked Aiden to determine a value per share of Mantz stock. manufacturing firms that are publicly traded. Aiden has gathered the following information about engine EPS DPS STOCK PRICE ROE ROA Jensen Motors Corp. Blue Cow Farm Engines Inc. Horrocks Farm Equipment 3.5 37 12.00% 9.00% 15.00% 11.00% 4 90 -0.5 16.00% 13.00% 30 Horrocks Farm Equipment's negative camings per share (EPS) was the result of an accounting write-off last year. Without the write- off, EPS for the company would have been $2.25. Last year, Mantz Engines Inc (MEI) had an EPs of $4.00 and paid a dividend to Sydney and Claire Mantz of $300,000 each. The company also had a return on equity of 16%. Anna tells Aiden that a 14% required rate of retum should be used to evaluate the value of Mantz. DPS - Dividends per share 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock? (Do not round intermediate caleulations) a. What is the company's total earnings? b. What are the company's payout and retention ratios? Payout Ratio= Retention Ratio- c. Using the retention ratio, calculate the company's growth rate. d. Now you can value the company using the entire dividend payment. The total value of the company's equity under these assumptions is: e. What is the value per share based on your response to part d? 2. Aiden has examined the company's financial statements, as well as examining those of its competitors. Although Mantz currently has a technological advantage, Aiden's research indicates that Mantz's competitors are investigating other methods to improve efficieney. Given this, Aiden believes that Mantz's technological advantage will last only for the next five years. After that period, the company's growth will likely slow to the industry average. Additionally. Aiden believes the industry average required return is more appropriate. Under Aiden's assumptions, what is the estimated stock price? (Do not round intermediate caleulations) a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information Average Industry Growth Rate - b. Calculate the Dividends for Mantz for each of the next 6 years e. What is the value of the stock today and what is the value per share? # 1 Answer # 2 Answer # 4 Answer Instructions #3 Answer #5 Answer 3. What is the industry average price-earnings ratio? What is Mantz's price-earnings ratio? Comment on any differences and explain why they may exist. Industry PE Original Mantz PE Revised Assumptions Mantz PE Comment on any differences and why they may exist: # 1 Answer # 4 Answer Instructions # 2 Answer # 3 Answer #5 Answer 4. Assume the company's growth rate slows to the industry average in five years. What future return on equity does this imply? Future ROE # 1 Answer # 4 Answer Instructions #2 Answer # 3 Answer #5 Answer 5. Sydney and Claire Mantz are not sure if they should sell the company. If they de not sell the eompany outright to Frentheway Farm Equipment, they would like to try and inerease the value of the company's steck. In this case, they want to retain control of the company and do not want to sell stock to outside investors. They also feel that the company's debt is at a manageable level and de not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price