Please read the attachment as it has everything you will need for this assignment. Please answer ALL of the questions. The questions are also in the uploaded document.
1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock?
2. Dan has examined the company’s financial statements, as well as examining those of its competitor’s. Although Ragan currently has a technological advantage. Dan’s research indicates that Ragan’s competitors are investigating other methods to improve efficency. Given this, Dan believes that Ragan’s technological advantage will last only for the next five years. After that period, the company’s growth will likely slow to the industry average. Additionally, Dan believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Dan’s assumptions, what is the estimated stock price?
3. What is the industry average price –earnings ratio? What is Ragan’s price-earnings ratio? Comment on any differences and explain why they may exist.
4. Assume the company’s growth rate declines to the industry average after five years. What percentage of the stock’s value is attributable to growth opportunities?
5. Assume the company’s growth rate slows to the industry average in five years. What future return on equity does this imply?
6. Carrington and Genevieve are not sure if they should sell the company. If they do not sell the company outright to East Coast Yachts, they would like to try and increase the value of the company’s 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 company’s 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?
mini_case__stock_valuation_at_ragan_engines.docx
Posted: 3 years ago
Due: 17/12/2016
Budget: $35
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