139781121785717 I'm looking for the solution to the Mini case study, Stock Valuation at Ragan Inc. from the above book Title"Fundamentals of corporate Finance"

STOCK VALUATION at RAGAN, Inc

Regan Thermal System Inc was founded 9 years ago by brother and sisterCarrington and Genevieve Regan. The company manufactures and installscommercial heating, ventilation, and cooling (HVAC) units. Ragan hasexperienced rapid growth because of a propriety technology thatincreases the energy efficiency of its system. The company is equallyowned by Carrington and Genevieve. The original agreement between thesiblings gave each

50,000

shares of stock. In the event either wishedto sell the stock, the shares first had to be offered to the other at adiscounted price.Although neither siblings wants to sell any shares at this time, theyhave decided they should value their holdings in the company forfinancial planning purposes. To accomplish this, they have gathered thefollowing information about their main competitors.EPS DPS STOCK PRICE ROE RArctic cooling Inc. $0.79 $0.20 $14.18 10% 10%National Heating&Cooling 1.38 0.62 11.87 13 13Expert HVAC Corp. -0.48 0.38 13.21 14 12Industry average $0.56 $0.40 $13.09 12.33% 11.67%Expert HVAC Corp.s negative EPS were the result of an accountingwrite-off last year. Without the write-off, EPS of the company wouldhave been

$1.06

Last year Regan had an EPS of $4.54 and paid a dividend to Carringtonand Genevieve of $63,000 each. The company also had a ROE of 25%. Thesiblings believe a required return for the company of 20% isappropriate.

Question 1.

Assuming the company continues its current growth rate, what is the value per share of the companys stock?

Question 2.

To verify their calculations, Carrington and Genevieve have hired Josh Schlessmanas a consultant. Josh was previously an equity analyst, and he has covered the HVAC industry.Josh has examined the companys financial statements as well as those of its competitors.Although Ragan currently has a technological advantage, Joshs research indicated that Raganscompetitors are investigating other methods to improve efficiency. Given this, Josh believes thatRegans technological advantage will last for only the next five years. After that period, thecompanys growth will likely slow to the industry average. Additionally, Josh believes that therequired return the company uses is too high. He believes the industry average required return ismore appropriate. Under Joshs assumptions, what is the estimated stock price?

Question 3.

What is the industry average price-earnings ratio? What is Regans price-earningsratio? Comment on any differences and explain why they may exist.

Question 4.

Assume the companys growth rate declines to the industry average after five years.What percentage of the stocks value is attributable to growth opportunities?

Question 5.

Assume the companys growth rate slows to the industry average in five years.What future return on equity does this imply?

Question 6.

After discussing the stock value with the consultant, Genevieve and Carringtonagree that they would like to increase the value of the company stock. Like many small businessowners, they would like to retain control of the company, but they do not want to sell stock tooutside investors. They also feel that the company's debt is at a manageable level and do no