MMSJJ, Inc was founded 10 years ago by brother and sister, Mark and Elena The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units MMSJJ Inc, has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units The company is equally owned by Mark and Elena The original partnership agreement between the siblings gave each 45,000 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 Expert HVAC Corporations 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 $0 77 Last year, MMSJJ, Inc , had an EPS of $2 29 and paid a dividend to Mark and Elena $75,000 each The company also had a return on equity of 20 percent The siblings believe that R 14 percent is an appropriate required return for the company QUESTIONS Assuming the company continues its current growth rate, what is the value per share of the companys stock (To determine g use Sustainable growth rate of dividends g ROE x b) To verify their calculations, Mark and Elena have hired Jerry Dean Miller as a consultant Jerry Dean was previously an equity analyst and covered the HVAC industry He has examined the companys financial statements, as well as those of its competitors Although MMSJJ, Inc currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency Given this, Mr Miller 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, Jerry Dean 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 Company Arctic Cooling National Heating Cooling Expert HVAC Corp Average EPS $1 03 $1 12 S0 19 $0 65 Div $0 55 $0 90 $0 49 $0 65 Stock Price $20 00 $23 12 $18 14 $20 42 ROE 16 00 17 00 15 50 16 17 R 12 00 13 00 12 75 12 58 Company Arctic Cooling National Heating Cooling Expert HVAC Corp Average EPS $1 03 $1 12 S0 19 $0 65 Div $0 55 $0 90 $0 49 $0 65 Stock Price $20 00 $23 12 $18 14 $20 42 ROE 16 00 17 00 15 50 16 17 R 12 00 13 00 12 75 12 58

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MMSJJ, Inc. was founded 10 years ago by brother and sister, Mark and Elena. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC)

MMSJJ, Inc. was founded 10 years ago by brother and sister, Mark and Elena. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. MMSJJ Inc, has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Mark and Elena. The original partnership agreement between the siblings gave each 45,000 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:

Expert HVAC Corporations 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 $0.77.

Last year, MMSJJ, Inc., had an EPS of $2.29 and paid a dividend to Mark and Elena $75,000 each. The company also had a return on equity of 20 percent. The siblings believe that R = 14 percent is an appropriate required return for the company.

QUESTIONS image text in transcribed

Assuming the company continues its current growth rate, what is the value per share of the companys stock? (To determine g use Sustainable growth rate of dividends: g = ROE x b)

To verify their calculations, Mark and Elena have hired Jerry Dean Miller as a consultant. Jerry Dean was previously an equity analyst and covered the HVAC industry. He has examined the companys financial statements, as well as those of its competitors. Although MMSJJ, Inc. currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Mr. Miller 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, Jerry Dean 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?

Company Arctic Cooling National Heating & Cooling Expert HVAC Corp Average EPS $1.03 $1.12 -S0.19 $0.65 Div. $0.55 $0.90 $0.49 $0.65 Stock Price $20.00 $23.12 $18.14 $20.42 ROE 16.00% 17.00% 15.50% 16.17% R 12.00% 13.00% 12.75% 12.58% Company Arctic Cooling National Heating & Cooling Expert HVAC Corp Average EPS $1.03 $1.12 -S0.19 $0.65 Div. $0.55 $0.90 $0.49 $0.65 Stock Price $20.00 $23.12 $18.14 $20.42 ROE 16.00% 17.00% 15.50% 16.17% R 12.00% 13.00% 12.75% 12.58%