EPS DPS STOCK PRICE ROE ROA Blue Ribband Motors Corp. $ 1.24 $ 0.39 $ &n

	EPS	DPS	STOCK PRICE	ROE	ROA
Blue Ribband Motors Corp.	$ 1.24	$ 0.39	$ 20.10	11.00%	14.00%
Bon Voyage Marine, Inc.	1.55	0.47	16.85	14.00%	17.00%
Nautilus Marine Engines	(0.25)	0.67	31.60	N/A	13.00%
Industry average	0.85	0.51	22.85	12.50%	14.67%

The company is equally owned by Carrington and Genevieve. The original agreement between the siblings gave each 125,000 shares of stock. Larissa has asked Dan to determine a value per share of Ragan stock. To accomplish this Dan has gathered the following info about some public competitors. Nautilus Marine Engines (EPS) was the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $1.93. Last year, Ragan had an EPS of $3.65 and paid a dividend to Carrigton and Genevieve for $195,000 each. The company also had a ROE of 18%. Larissa teslls Dan that a required return for Ragan of 13% is appropriate.

\

2. Dan has examined the company’s financial statements, as well as examining those of its competitors. Although Ragan currently has a technological advantage, Dan’s research indicates that Ragan’s competitors are investigating other methods to improve efficiency. 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 the industry average required return is more appropriate. Under Dan’s assumptions, what is the estimated stock price? (Do not round intermediate calculations)

a. Calculate the industry's average growth rate. You may need to adjust for nonrecurring events that would impact the industry information

Average Industry Growth Rate =

b. Calculate the Dividends for Ragan for each of the next 6 years

c. What is the value of the stock today and what is the value per share?

Expert Solution

After adjusting for nonrecurring events (Nautilus Marine Engines)
a. Av. Industry growth rate= Av.ROE*Retention Ratio
ie. 12.50%*((1.57-0.51)/1.57)
8.44%

b. Calculation of Dividends for Ragan for each of the next 6 years
Ragan's Year 0 DPS= $ 195000/125000 shs.=	1.56
Ragan's EPS=	3.65
Retention Ratio=(3.65-1.56)/3.65=	57.26%
Ragan's growth rate=ROE*RR=
18%*57.26%=	10.31%

Ragan's Dividends for the next 6 yrs.
D1	3.65*(1+10.31%)^1=	4.0263
D2	3.65*(1+10.31%)^2=	4.4414
D3	3.65*(1+10.31%)^3=	4.8993
D4	3.65*(1+10.31%)^4=	5.4045
D5	3.65*(1+10.31%)^5=	5.9617
D6	3.65*(1+10.31%)^6=	6.5763	(as per this growth rate)

If the current growth rate of Ragan continues,
then value per share will be
3.65*(1.1031)/(18%-10.31%)=	52.36

C. Stock price as per Dan's assumptions--g=8.44% (Ind. Av. g )after Yr.5			PV F at 13%	PV at 13%
D1	3.65*(1+10.31%)^1=	4.0263	0.884956	3.563111
D2	3.65*(1+10.31%)^2=	4.4414	0.783147	3.47829
D3	3.65*(1+10.31%)^3=	4.8993	0.69305	3.395488
D4	3.65*(1+10.31%)^4=	5.4045	0.613319	3.314657
D5	3.65*(1+10.31%)^5=	5.9617	0.54276	3.235751
Value at end Yr.5(5.9617*(1.0844)/(13%-0.0844)=		141.773	0.54276	76.94893
Stock Value at Year 0				93.93622
Value per share=			ie.	93.94

jeff jeffy answered 1 week ago

4. The blue company has ROE = 25%; growth in EPS = 4.5%; payout ratio of...

4. The blue company has ROE = 25%; growth in EPS = 4.5%; payout ratio of 35% and investors required return of 12.5%. Calculate the price to book value ratio. If P/BV = 2.5 you will buy_________ you will sell__________ 5.a) If the payout ratio is 35% and net profit margin is 4.5% with a growth rate of 5%, calculate price to sales ratio if you require a 11% return on investment. b) If sales rise by $1.25 per...

Explain how ROE, ROA and P/E are affected when new common stock is issued by a...

Explain how ROE, ROA and P/E are affected when new common stock is issued by a corporation? Identify two different factors that affect stock price besides issuing new shares or repurchasing shares and how the price is affected?

National Home Rentals has a beta of 1.24, a stock price of $22, and recently paid...

National Home Rentals has a beta of 1.24, a stock price of $22, and recently paid an annual dividend of $0.94 a share. The dividend growth rate is 3 percent. The risk-free rate is 3.1 percent and the expected market return is 10.6 percent. What is the firm's cost of equity?

On a particular date, a company has a stock price of $24.17 and an EPS of...

On a particular date, a company has a stock price of $24.17 and an EPS of $ 2.89. Its competitor had a stock price of $20.57. What would be the expected EPS of their competitor's stock on this date, if estimated using the method of comparables? A. 1.36 B. 4.77 C. 3.60 D. 2.46

Toyota Corp.'s stock price has a variance of returns equal to 0.0335. Honda Corp.'s stock price...

Toyota Corp.'s stock price has a variance of returns equal to 0.0335. Honda Corp.'s stock price has a variance of returns equal to 0.0455. The covariance between Toyota and Honda is 0.0675. What is the standard deviation of a portfolio consisting of 50% Toyota and 50% Honda? *Place your answer in decimal form *please show how to get anwser

Assume that the price of Socates Motors stock will either rise to $50 or fall to...

Assume that the price of Socates Motors stock will either rise to $50 or fall to $35 in one month and that the risk free rate for one month is 1.5%. How much is an option with a strike price of $40 worth if the current stock price if the current stock price is $45 instead of $40?

PepsiCo (PEP) has a stock price of $72.00 and EPS of $3.80. Its competitor and close...

PepsiCo (PEP) has a stock price of $72.00 and EPS of $3.80. Its competitor and close comparable firm, the Coca-Cola Company (KO), has EPS of $1.90. Estimate the value of a share of Coca-Cola stock using only this data. a. $144.00 b. $136.80 c. $36.00 d. $9.11

Stock price = $40, dividend paid =$2, EPS = $4, so : A. dividend payout ratio...

Stock price = $40, dividend paid =$2, EPS = $4, so : A. dividend payout ratio =5% b dividend yield =5% c. dividend yield =50% d. P-E=20 e None of the above

n the calculation of price of a common stock, future stock dividends are _______ and discount...

n the calculation of price of a common stock, future stock dividends are _______ and discount rates for the stock are ______. a.) guaranteed; not guaranteed b.) not guaranteed; not guaranteed c.) not guaranteed; guaranteed d.) guaranteed; guaranteed

A) You try to price the options on XYZ Corp. The current stock price of XYZ...

A) You try to price the options on XYZ Corp. The current stock price of XYZ is $100/share. The risk-free rate is 5%. You project the stock price of XYZ will either be $90 or $120 in a year. Assume you can borrow or lend money at the risk-free rate. Use risk-neutral approach to price the 1-year call option on XYZ Corp with the strike price of $105. (Attention: using a wrong approach will cost you all the credits) B)...

Question