Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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%


problems:

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

Define and contrast stocks and bondswhat are the advantages

Define and contrast stocks and bonds. What are the advantages of owning preferred stock? What are the advantages of owning common stock?

In order to obtain a sample of voters in pennsylvania a

In order to obtain a sample of voters in Pennsylvania, a simple random sample of 10 counties is selected. From each of the selected counties, 10 precincts are chosen at random. Finally, from each of these 100 precincts , ...

Bailouts by the fed do you think that the fed should have

Bailouts by the Fed: Do you think that the Fed should have bailed out large financial institutions during the credit crisis?

When monetary policymakers hit the zero When monetary policymakers hit the zero

When monetary policymakers hit the zero nominal-interest-rate bound with their policy rate, they have the option to turn to unconventional tools of monetary policy. How do these unconventional tools work, and why are pol ...

Five years ago laissez-faire recliners issued 10000000 of

Five years ago, Laissez-Faire Recliners issued $10,000,000 of corporate bonds with a 30-year maturity. The bonds have a coupon rate of 10.125%, pay interest semiannually, and have a par value of $1,000 per bond. The bond ...

Problema manager checked production records and found that

Problem A manager checked production records and found that a worker produced 195 units while working 50 hours. In the previous week, the same worker produced 144 units while working 40 hours. a. Compute Current period p ...

Phuc is playing dungeons and dragons with a group of three

Phuc is playing Dungeons and Dragons with a group of three friends. To heal an injured friend's character, Phuc must roll one die and roll a number higher than that friend's damage level. This turn, Phuc can roll one die ...

Explain how a recessionary output gap would emerge in an

Explain how a recessionary output gap would emerge in an economy where the long-run aggregate supply curve is persistently shifting to the right.

Explain why a well-capitalized domestic banking system

Explain why a well-capitalized domestic banking system might be important for the successful maintenance of a fixed exchange-rate regime.

International barriersnbspif barriers to international

International Barriers :  If barriers to international securities markets are reduced, will a country's interest rate be more or less susceptible to foreign lending and borrowing activities? Explain.

  • 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