Case-1 Stock Valuation at Oxen, Inc. Oxen, Inc., was founded nine years ago by brother and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Case-1 Stock Valuation at Oxen, Inc. Oxen, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Oxen. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Oxen, 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 $1.06. Last year, Oxen, Inc., had an EPS of $4.54 and paid a dividend to Carrington and Genevieve of $63,000 each. The company also had a return on equity of 25 percent. The siblings believe that 20 percent is an appropriate required return for the company. Oxen, Inc. Competitors Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry Average EPS $.79 1.38 48 $.56 DPS $.20 62 38 $.40 Stock Price $14.18 11.87 13.21 $13.09 ROE 10.00% 13.00 14.00 12.33% R 10.00% 13.00 12.00 11.67% QUESTIONS 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock? Q2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company's financial statements, as well as examining its competitors. Although Oxen, Inc., currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company's technological advantage will last only for the next five years. After that period, the company's 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 appropriate. Under this growth rate assumption, what is your estimate of the stock price? Q3. What is the industry average price-earnings ratio? What is the price-earnings ratio for Oxen, Inc.? Is this the relationship you would expect between the two ratios? Why? Case-1 Stock Valuation at Oxen, Inc. Oxen, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Oxen. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Oxen, 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 $1.06. Last year, Oxen, Inc., had an EPS of $4.54 and paid a dividend to Carrington and Genevieve of $63,000 each. The company also had a return on equity of 25 percent. The siblings believe that 20 percent is an appropriate required return for the company. Oxen, Inc. Competitors Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry Average EPS $.79 1.38 48 $.56 DPS $.20 62 38 $.40 Stock Price $14.18 11.87 13.21 $13.09 ROE 10.00% 13.00 14.00 12.33% R 10.00% 13.00 12.00 11.67% QUESTIONS 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock? Q2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company's financial statements, as well as examining its competitors. Although Oxen, Inc., currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company's technological advantage will last only for the next five years. After that period, the company's 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 appropriate. Under this growth rate assumption, what is your estimate of the stock price? Q3. What is the industry average price-earnings ratio? What is the price-earnings ratio for Oxen, Inc.? Is this the relationship you would expect between the two ratios? Why?
Expert Answer:
Answer rating: 100% (QA)
140 answers Artic National Expert Industry Average ... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these accounting questions
-
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,...
-
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,...
-
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,...
-
Suppose that a telephone switchboard of some company on the average handles 300 calls per hour, and that the board can make at most 10 connections per minute. Using the Poisson distribution, estimate...
-
The first audit of the books of Nuvo Corp. was made for the year ended December 31, 2014. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in...
-
The standard cost of product 2525 includes 1.9 hours of direct labour at $14.00 per hour. The predetermined overhead rate is $22.00 per direct labour hour. During July, the company incurred 4,100...
-
What are the two tests for determining whether a party may be joined in a lawsuit?
-
Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a...
-
Ankh - Sto Associates Co . is expected to generate a free cash flow ( FCF ) of $ 4 , 8 3 5 . 0 0 million this year ( FCF = $ 4 , 8 3 5 . 0 0 million ) , and the FCF is expected to grow at a rate of 2...
-
4.Prepare las siguientes entradas: a.Co X hizo una Venta a una afiliada (Z) por bienes $50,000 a un costo de $32,000. Co Z recibi el inventario. Co Z no vendi el inventario al final del periodo....
-
The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Sales Variable manufacturing and...
-
You use a pully to lift a 168N load 0.35m, by applying a force of 40N over a distance of 1.75m 1)how much work do you do on the pully? 2)how much work does the pully apply to the load? 3) what is...
-
Refer to Hubspot's Not another state of marketing report.Links to an external site. As you examine the report, pick out a key finding or trend that catches your eye. Then answer the following: What...
-
Identify a situation in which relativity should NOT hold. Explain Identify and fix a popular misconception about black holes Explain how gravity is not a real force in general relativity. Why is this...
-
find cost per unit and the prices of them both in traditional and ABC system Product Alfa Beta Production Units 2,580 5100 Material Cost per unit 31 51 Labour Cost per unit 21 17 Machine...
-
A current carrying wire is bent into a circular arc with a radius of 0.700cm that sweeps out 1.20radian. The magnitude of the magnetic field at the center of the arc is 8.0010-5T. What is the current...
-
Explain the difference between state feedback and output feedback. Also, explain how the combination of a state observer with a state feedback law can be used to obtain an output feedback controller....
-
If a and b are positive numbers, find the maximum value of f ( x ) = x a (9 x ) b on the interval 0 x 9.
-
The Tribiani Co. just issued a dividend of $2.90 per share on its common stock. The company is expected to maintain a constant 4.5 percent growth rate in its dividends indefinitely. If the stock...
-
In the previous problem, suppose you believe that sales in five years will be $45.5 million and the price-sales ratio will be 2.15. What is the share price now? Previous problem You have looked at...
-
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $16,000 per month for 25 years, with the first...
-
Internal auditing is an important part of an organization's system of internal control. Required: (1) List three major objectives of internal control. (2) For each of the objectives listed in 1,...
-
You are making an audit of the marketing branch. You find that your company has embarked on a program to penetrate the foreign market with its products. To do so it has hired an agent living and...
-
The Gordon Manufacturing Company produces farm equipment. Its sales were about \($50,000,000\) last year. Ingrid Austin has been an internal auditor at Gordon for three years. She has an MBA degree...
Study smarter with the SolutionInn App