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Lesson #4, Assignment #4 - Chapter 8 Stock Valuation at...

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Chapter 8 Stock Valuation at Ragan, Inc. Input area: Shares owned by each sibling 50,000 Ragan EPS $4.54 Dividend to each sibling $63,000 Ragan ROE 25% Ragan required return 20% EPS DPS Stock price ROE R Artic Cooling, Inc. $0.79 $0.20 $14.18 10.00% 10.00% National Heating & Cooling 1.38 0.62 11.87 13.00% 13.00% Expert HVAC Corp. (0.48) 0.38 13.21 14.00% 12.00% Industry average $0.56 $0.40 $13.09 12.33% 11.67% Expert EPS w/o write-off $1.06 Output area: 1) Total earnings $454,000.00 Retention ratio 0.72 Growth rate 18.00% Current dividend per share $1.26 Dividend per share next year Question 1: Value per share $74.34 2) Industry EPS $1.49 Industry payout ratio 27.46% Industry retention ratio 72.54% Industry growth rate 9.46% Year Dividend 1 $148,680.00 2 $175,442.40 3 $207,022.03 4 $244,286.00 5 $288,257.48 6 $340,143.82 Stock value in Year 5 $15,184,991.96 Question 2: Stock price today $93.53 Question 3: Industry PE 17.03 Ragan PE (original assumption) 4.52 Ragan PE (revised assumption) 17.24 Stock price implied by industry PE $78.27 Is this the relationship you would expect between the ratios? Why or why not? Answer: Yes, Because Ragan’s PE is too high. The PE using the revised assumptions is close to the industry PE ratio
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Question 5: ROE 12.57%
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