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

Mountain minerals pays a constant annual dividend one year

Mountain Minerals pays a constant annual dividend. One year ago, when you purchased shares of that stockat $40 a share, the dividend yield was 6.5 percent. Over this past year, the inflation rate has been 3.2 percent.Tod ...

Looking back on what we have covered in this class identify

Looking back on what we have covered in this class, identify three areas that you would consider to be your strengths and discuss the following: Why do you feel that you excel in these areas more than others? What have y ...

Question 1 - planning and strategic inputbriefcompany x is

Question 1 - Planning and strategic input Brief: Company X is a department Store with 100outlets, selling a wide range of household and clothing products. Traditionally they have used Press advertising to drive awareness ...

Camberra freight is in charge of transporting auto parts

Camberra Freight is in charge of transporting auto parts for an US car manufacturer in Australia. Every week a tractor and one or two trailers move from the port of Melbourne to a warehouse located 430 km away. A tractor ...

1 where is lead most likely to be found in a household2

1. Where is lead most likely to be found in a household? 2. Identify the criteria for determining existence of wetlands. 3. What happens to land containing an endangered species habitat? 4. Discuss a landowner's rights i ...

Assignment learning outcomes covered1 to enable students to

Assignment Learning Outcomes Covered 1. To enable students to explore and develop an understanding of the theoretical techniques, concepts and methods employed in finance. 2. To develop the ability to apply the theoretic ...

1 define security interest and how it has been used in real

1. Define security interest and how it has been used in real estate finance since the Industrial Revolution. 2. What is meant by the term collateral? By hypothecation? 3. What is the purpose of a promissory note? Of a mo ...

A 1000 bond is paying a coupon interest rate of 7 the

A $1,000 Bond is paying a coupon interest rate of 7%. The current Required Rate of Return in the market is 5%. If you were buying this Bond on the market today, would you expect to pay more than $1,000 for it (Premium) o ...

1 what is the only relevant decision for independent

1. What is the only relevant decision for independent projects if an unlimited capital budget exists? How does your response change if the projects are mutually exclusive? How does your response change if the firm faces ...

How many variance and covariance terms does the expression

How many variance and covariance terms does the expression of variance on a 5 asset portfolio have?

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro