vat/ LTE 103 connect theducation.com E search ebook 226 gobook contents CHAPTER CASE STOCK VALUATION AT RAGAN, INC. D agan, 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 equaly 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 compethors: Export HVAC Corporation's negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings por 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. - Competitor Stock Pe HOE Cooking in 1845.99 $17.00 56.00% 1.346 13.3 14.00 10.00 15.00 5.4 5.40 $16.40 1.00 1.6 QUESTIONS ng company continues its current growth what is the value per share of the Genevieve of $75,000 each. The company also had a return on equity of 17 percent ne siblings believe that 14 percent is an appropriate required return for the company Ragan, Inc. - Competitors Stock EPS Div. Price ROER Arctic Cooling, Inc. $.84 $.39 $17.83 16.00% 10.00% National Heating & Cooling 1.345 19.23 14.00 13.00 Expert HVAC Corp. --56 43 18.14 15.00 12.00 industry Average 5.54 8.49 $18.40 15.00 11.67 QUESTIONS 1. Assuming the company continues its current growth rate, what is the value por share of the company's stock? 2. To verify their calculations. Carrington and Genevieve have hired Josh Schiessman 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 those of its competitors. Although Raon, 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 willkely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry averago required return is more appropriate. Under this growth rate assumption what is your estimate of the stock price? vat/ LTE 103 connect theducation.com E search ebook 226 gobook contents CHAPTER CASE STOCK VALUATION AT RAGAN, INC. D agan, 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 equaly 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 compethors: Export HVAC Corporation's negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings por 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. - Competitor Stock Pe HOE Cooking in 1845.99 $17.00 56.00% 1.346 13.3 14.00 10.00 15.00 5.4 5.40 $16.40 1.00 1.6 QUESTIONS ng company continues its current growth what is the value per share of the Genevieve of $75,000 each. The company also had a return on equity of 17 percent ne siblings believe that 14 percent is an appropriate required return for the company Ragan, Inc. - Competitors Stock EPS Div. Price ROER Arctic Cooling, Inc. $.84 $.39 $17.83 16.00% 10.00% National Heating & Cooling 1.345 19.23 14.00 13.00 Expert HVAC Corp. --56 43 18.14 15.00 12.00 industry Average 5.54 8.49 $18.40 15.00 11.67 QUESTIONS 1. Assuming the company continues its current growth rate, what is the value por share of the company's stock? 2. To verify their calculations. Carrington and Genevieve have hired Josh Schiessman 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 those of its competitors. Although Raon, 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 willkely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry averago required return is more appropriate. Under this growth rate assumption what is your estimate of the stock price