Awesome Inc. was founded a few years ago by two friends, Bob and Sam. The company is equally owned by Bob and Sam. The original partnership agreement between them gave them each 50,000 shares of stock. The company manufactures and installs commercial heating, ventilation, and cooling units. Sam and Bob are engineering graduates and have developed proprietary technology that increases the energy efficiency. Awesome Inc. has experienced rapid growth because of this proprietary technology. Recently, Bob and Sam have been discussing the possibility of selling their company. Although they dont need the money immediately, they may sell their holdings if they get a good price. Hence, they have decided that they should value their holdings in the company. Alongside their engineering courses, Bob and Sam also took courses in accounting and finance. Based on the financial statements from last year, Bob and Sam calculated that Awesome Inc. had an EPS (earnings per share) of 5.24 and paid a dividend of $ 1.26 per share. The company also had ROE (return on equity) of 24% and they also believe that 20% is an appropriate required rate of return for their company. In order to get an expert opinion, they hire Joe, who is an expert equity analyst. Joe gathers the following information about Awesome Inc.s main competitors:

	Earnings Per Share	Dividend Per Share	Stock Price	Return on Equity	Required Rate
ABC Inc.	$ 0.70	$ 0.20	$ 14.00	12.00%	11.00%
EFG Ltd.	$ 1.30	$ 0.62	$ 11.87	13.00%	13.00%
XYZ Corp.	$ 1.00	$ 0.38	$ 13.13	14.00%	12.00%
Average	$ 1.00	$ 0.40	$ 13.00	13.00%	12.00%

Joe thinks that Awesome Inc.s technological advantage will last only for the next four years. After that, the companys growth will likely slow to the industry growth average. Additionally, Joe believes that Bob and Sam have miscalculated the required rate of return and it should actually be equal to the industry average required rate of return.

Based on the information given above and your knowledge, answer the following questions:

1. Dividend discount model and comparables method are two common techniques used to value stocks. Compare and contrast these techniques.

2. Calculate the value of Awesome Inc.s stock in the following cases:

a. Assuming that Bob and Sam are correct, and the company continues to grow at its current growth rate forever what is the value per share?

b. Assuming that Joe is correct, what is the value per share?

3. Calculate the value per share using the comparables method.

4. Comment on the difference. Do you think that the technological advantage possessed by Awesome Inc. plays any role in its valuation? Do you think such an advantage can last forever?

5. Calculate Awesome Inc.s PE ratio as per abovementioned assumptions. Do you see any difference between the industry average and Awesome Inc.s PE ratio? If yes, explain the reasons for this difference.

6. Great Inc. is thinking about acquiring Awesome Inc. Great Inc. is willing to offer $60 per share to Bob and Sam to give up their entire holdings. Based on your analysis so far, would you recommend Bob and Sam to take this offer? Explain.

7. Bob and Sam want to increase the value of their companys stock but they dont want to dilute their equity or issue more debt. How can they increase the value of the stock? Are there any conditions under which this strategy would not increase the value of the stock?