**PLEASE SHOW EXCEL FORMULAS** NEEDED BY 12.07.19

Background:

Anna has been talking with the companys directors about the future of Frentheway Farm Equipment (FFE). The company has been using outside suppliers for various key components of the companys farm equipment, including engines. Anna has decided that FFE should consider the purchase of an engine manufacturer to allow FFE to better integrate its supply chain and get more control over engine features. After investigating several possible companies, Anna feels that the purchase of Mantz Engines Inc (MEI), is a possibility. She has asked Aiden Carney to analyze Mantzs value.

Mantz Engines, Inc., is a privately owned company that was founded seven years ago by Sydney and Claire Mantz. The company manufacturers farm engines used primarily in farm equipment. Mantz has experienced rapid growth because of a proprietary technology that increases the fuel efficiency of its engines with very little sacrifice in performance. The company is equally owned by Sydney and Claire Mantz. The original agreement between the siblings gave each 200,000 shares of stock. The Mantzs have not issued any additional stock nor have they sold any of their stock since founding the company.

Anna has asked Aiden to determine a value per share of Mantz stock. Aiden has gathered the following information about engine manufacturing firms that are publicly traded

	EPS	DPS	STOCK PRICE	ROE	ROA
Jensen Motors Corp.	$ 3.50	$ 2.00	$ 37.00	12.00%	9.00%
Blue Cow Farm Engines Inc.	8.00	4.00	90.00	15.00%	11.00%
Horrocks Farm Equipment	(0.50)	1.00	30.00	16.00%	13.00%

Horrocks Farm Equipments negative earnings per share (EPS) was the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $2.25. Last year, Mantz Engines Inc (MEI) had an EPS of $4.00 and paid a dividend to Sydney and Claire Mantz of $300,000 each. The company also had a return on equity of 16%. Anna tells Aiden that a 14% required rate of return should be used to evaluate the value of Mantz

DPS= Dividends per share

1. Assuming the company continues its current growth rate, what is the value per share of the companys stock? (Do not round intermediate calculations)

a. What is the company's total earnings?

b. What are the company's payout and retention ratios?

c. Using the retention ratio, calculate the company's growth rate.

d. Now you can value the company using the entire dividend payment. The total value of the companys equity under these assumptions is:

e. What is the value per share based on your response to part d?

2. Aiden has examined the companys financial statements, as well as examining those of its competitors. Although Mantz currently has a technological advantage, Aidens research indicates that Mantzs competitors are investigating other methods to improve efficiency. Given this, Aiden believes that Mantzs technological advantage will last only for the next five years. After that period, the companys growth will likely slow to the industry average. Additionally, Aiden believes the industry average required return is more appropriate. Under Aidens assumptions, what is the estimated stock price? (Do not round intermediate calculations)

2a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information

2b. Calculate the Dividends for Mantz for each of the next 6 years

2c. What is the value of the stock today and what is the value per share?

3. What is the industry average priceearnings ratio? What is Mantzs priceearnings ratio? Comment on any differences and explain why they may exist.

Industry PE:

Original Mantz PE:

Revised Assumptions Mantz PE:

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

Future ROE:

5. Sydney and Claire Mantz are not sure if they should sell the company. If they do not sell the company outright to Frentheway Farm Equipment, they would like to try and increase the value of the companys stock. In this case, they want to retain control of the company and do not want to sell stock to outside investors. They also feel that the companys debt is at a manageable level and do not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?