Mantz Engines, Inc., is a privately owned company that was founded seven years ago by Sydney and
Question:
Mantz Engines, Inc., 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. Aiden has gathered the following information about engine manufacturing firms that are publicly traded
| | EPS | DPS | STOCK PRICE | ROE | ROA |
| Jensen Motors Corp. | $ 3.50 | $ 2.00 | $ 37.00 | 12.00% | 9.00% |
| Blue Cow Farm Engines Inc. | 8.00 | 4.00 | 90.00 | 15.00% | 11.00% |
| Horrocks Farm Equipment | (0.50) | 1.00 | 30.00 | 16.00% | 13.00% |
Horrocks Farm Equipment’s negative earnings 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 return 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 calculations)
a. What is the company's total earnings?
b. What are the company's payout and retention ratios?
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 efficiency. 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 calculations)
2a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information
2b. Calculate the Dividends for Mantz for each of the next 6 years
2c. What is the value of the stock today and what is the value per share?
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:
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:
Expert Answer:
Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw
