I'm having trouble with Question #2. You can answer both, but I really need an explanation for question 2, please.

Stock Valuation at Ragan, Inc.

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 following information about their main competitors:

Ragan, Inc. Competitors
	EPS	Dividend	Stock Price	ROE	R
Arctic Cooling, Inc.	$0.84	$0.39	$17.83	16.00%	10.00%
National Heating & Cooling	$1.34	$0.65	$19.23	14.00%	13.00%
Expert HVAC Corp.	$0.55	$0.43	$18.14	15.00%	12.00%
Industry Average	$0.54	$0.49	$18.40	15.00%	11.67%

Expert HVAC Corporations negative earnings per share (EPS) were the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $0.54.

Last year, Ragan, Inc., had an EPS of $4.85 and paid a dividend to Carrington and Genevieve of $75,000 each. The company also had a return on equity (ROE) of 17%. The siblings believe that 14% is an appropriate required return (R) for the company.

Questions:

1. Assuming the company continues its current growth rate, what is the value per share of the companys stock? (Hint: growth rate (g) = retention ratio ROE; 2 retention ratio was discussed in Chapter 3 of the textbook. Use 4 decimals when calculating the growth rate (g).)

2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the companys 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 companys technological advantage will last only for the next five years. After that period, the companys 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? (Use 4 decimals when calculating the industry growth average and the industry average required return.)