Questions 1 and 2

Chapter Case Stock Valuation at Ragan, Inc. Ragan, Inc: was founded nine years ago by brother and 3ister Corrington and Gentevieve Ragan. The company manufactures and installs commercial heoting, ventilation, and cooling (HVAC) units. Rogan, Inc; has experienced rapid growth because of a proprletary technology that increases the energy effliency 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 gothered the following information about their main competitors: Expert HVAC Corporetion's negative eamings per share were the resul of an accounting white-oif last yeat: Without the write-off, eamings per share for the company would have been $110 Last year, Ragan, Inc., hed an EPS of $3.15 and paid a dividend to Carrington and Genevieve of $45,000 each. The company aiso had a return on equity of 17 percent. The siblings belleve that i4 percent is an approptiate required return for the company. 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 as a consultant. Josh Was previously an equity analyst and covered the HVAC industry. Josh has examined the compony's 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 company's technological advantage will last only for the next flve years. After that period, the company's growth will likely slow to the incustry growth average. Additionally, Josh believes that the required return used by the company is too high. He belleves the Industry average required return is more appropriate. Under this growth rate assumption, whot is your estimate of the stock price