Ask Question, Ask an Expert


Ask Basic Finance Expert

Regan Inc. was founded nine years ago by the brother and sister Carrington and Genevieve Regan. The company produces and installs commercial ventilation, heating, and cooling (HVAC) units. Regan, Inc. has experienced a fast enlargement because of a proprietary technology that raises the energy efficiency of its units. The company is equally owned by the Carrington and Genevieve. The original partnership agreement between the siblings gave each 50.000 shares of stock; the shared first had to be offered to the other at a discounted price.

Though neither sibling desires to sell, they have decided they must value their holdings in the company. To get started, they have collected the detail about their main competitors in the table below.

Ragan, Inc., competitors
                                                                  EPS        DPS          Stock price       ROE           R
Arctic cooling, Inc.                                       $ 1.30    $ .15             $25.34         9.00%     10.00%
National heating and cooling                         $ 1.95    $ .22              $29.85        11.00%    13.00%
Expert HVAC corp.                    (.37) value is in minus  $ .12            $ 22.13       10.00%    12.00%
The Industry Average                                   $ .96       $ .16             $ 25.77      10.00%    11.67%


1- Supposing the company continues its current growth rate, what is the value per share of the company’s stock?

2- To verify their computation. Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAS industry. Josh has determined the company’s financial statement, as well as determining its competitors. Though Regan Inc. currently has a technological benefit, his research indicates that other companies are investigating techniques to improve effectiveness. Given this, Josh believes that the company’s technological advantage will last only for the next five years after that period. The company’s growth will likely slow to the industry enlargement average. Additionally Josh thinks that the required return used by company is too high. He thinks the industry average required return is more appropriate. Under this growth assumption, what is your estimate of the stock price?

3- What is the industry average price-earnings ratio? What is price-earning ration for Reagan Inc.? Is this the relationship you would expect between the two ratios? Why?
4- Carrington and Genevieve are unsure of how to interpret the price-earnings ratio after some head scratching. They have come up with the following expression for the price-earnings ratio:
P0/E1 = 1-b / R –(ROE * b)

Beginning with dividend growth model, prove this result. What does this expression imply about the relationship between the dividend payout ratio, the needed return on stock, and the company’s ROE?

5- Suppose the company’s growth rate slows to industry average in five years. What prospect return on equity does this imply, supposing a constant payout ratio?

6- After discussing the stock value with Josh. Carrington and Genevieve agree that they would like to raise the value of the company stock. Like many small business owners, they want to retain control of company, but they don’t want to sell stock to outside investors. They also feel that the company’s debt is at a manageable level and do not want to borrow more money. How can they increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91633
  • Price:- $50

Guranteed 36 Hours Delivery, In Price:- $50

Have any Question? 

Related Questions in Basic Finance

What is the minimum clearance that must be maintained

What is the minimum clearance that must be maintained between a crane and a 50-kV power line? Are there any exceptions to this rule; if so, what are the exceptions?

Hedging using futuressuppose a farmer is expecting that her

Hedging using futures Suppose a farmer is expecting that her crop of oranges will be ready for harvest and sale as 150,000 pounds of orange juice in 3 months time. Suppose each orange juice futures contract is for 15,000 ...

Assignment1 describe the role that the winners curse may

Assignment 1. Describe the role that the "winner's curse" may play in the underpricing of IPOs. 2. a. Does a rights offer cause a share price decrease? Why or why not? b. How are existing shareholders affected by a right ...

Why are direct financing transactions more costly or

Why are direct financing transactions more costly or inconvenient than intermidiated transactions?

The text web site has a link to a paper by christine blair

The text Web site has a link to a paper by Christine Blair, an economist at the FDIC, called "The Mixing of Banking and Commerce." Read this paper and briefly summarize the arguments for and against the "mixing" in the t ...

You will receive 5000 three years from now the discount

You will receive $5,000 three years from now. The discount rate is 8 percent. a. What is the value of your investment two years from now? Multiply $5,000 × .926 (one year's discount rate at 8 percent). b. What is the val ...

A with reference to the four quadrant diagram explain in

a) With reference to the four quadrant diagram, explain in your own words the short and long run effects of an (unanticipated) monetary expansion on exchange rates; interest rates; the price level; the trade balance; out ...

The domestic and international financial marketplace topic

The domestic and international financial marketplace. Topic include financial markets, types of financial intermediaries, the form and methods of stock market operation, the stock market, multinational corporation, forei ...

A car rental firm is currently renting 800 cars per year

A car rental firm is currently renting 800 cars per year. How many cars will the firm be renting in 10 years if the demand for car rentals is expected to increase by 7% per year?

Careers in financeuse the internet and or strayer resource

Careers in Finance Use the Internet and / or Strayer Resource Center to research career options within the field of finance. Consider the Bureau of Labor Statistics Website, and the Websites of finance professional assoc ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate