Bond Las Paletas Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. The bond makes no payments for the fi rst six years, then pays $1,100 every six months over the subsequent eight years, and fi nally pays $1,400 every six months over the last six years. Bond N also has a face value of $20,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 6 percent compounded semiannually, what is the current price of bond M? Of bond N? Equity 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. Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered the information about their main competitors in the table below. Expert HVAC Corporation's negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $1.10. The ROE for Expert HVAC is based on net income excluding the write-off. Last year, Ragan, Inc., had an EPS of $3.75 and paid a dividend to Carrington and Genevieve of $48,000 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., Competitors Stock Price ROE DPS EPS 10.00% S.15 $25.34 9.00% Arctic Cooling, Inc National Heating & Cooling Expert HVAC Corp $1.30 11.00 29.85 13.00 1.95 22 10.00 12.00 22.13 -37 12 10.00% 11.67% $25.77 $.16 $.96 Industry Average QUESTIONS 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 Schlessman Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company's fi nancial statements, as well as examining 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 as a consultant. 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? 3. What is the industry average price-earnings ratio? What is the price-earnings ratio for Ragan, Inc.? is this the relationship you would expect between the two ratios? Why