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, 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.

1. Assuming the company continues its current growth rate, what is the value per 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 Ragan, 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?

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Ragan, Inc.-Competitors Stock EPS Div. Price ROE $.84 1.34 65 19.23 14.00 13.00 Arctic Cooling, $.39 $17.83 16.00% 10.00% Inc. National Heating & Cooling Expert HVAC 55 43 18.14 15.00 12.00 Corp. Industry $.54 $.49 $18.40 15.00 11.67 average