How does Zynga recognize revenue from virtual goods?

Zynga was founded in July 2007 and is headquartered in San Francisco, California. Around 80% of Zynga’s revenue comes from Facebook users. Facebook provides a social networking platform used by over 1 billion people, and Zynga is a video game developer with many products (e.g. FarmVille, MafiaWars) that interface with social technology sites like Facebook. Zynga has been publicly traded since December 16, 2011.

Zynga’s FarmVille players can use Facebook to purchase in-game currency they can use to acquire resources, such as hay and animals, in pursuit of a more productive virtual farm. Revenue from conversion of real dollars into in-game currency is big business: Zynga estimates that such sales, from FarmVille hay to Mafia Wars guns, accounted for nearly all of Zynga’s $1.1 billion in 2011 revenues and 12% of revenue for Facebook.

Revenue recognition in firms that earn money through socially-based use of virtual items is challenging. Zynga’s customers convert real dollars into FarmVille currency in order to purchase virtual goods. Customers’ real dollars become Farm Cash which the customers can use in the future to purchase virtual items in the Farmville application. When the customer uses Farm Cash to buy a tractor, for example, Facebook reduces the player’s Farm Cash, keeps 30% of the real dollar equivalent as a processing fee, and sends 70% to Zynga.

Starting in 2009, Zynga classified the game items it sells to players as either “consumable” or “durable” goods. The former category is for goods that players can immediately use, like energy in the game CityVille; the latter is for goods that players buy and keep for the duration of the game, such as tractors in FarmVille. Until 2010 Zynga estimated the average player life (the number of months a player on average continues to play the game) to be 19 months. In early 2011 it changed that estimate to 15 months. The shorter player life increased revenue for the six months by $27.3 million, turning a loss for the six months ended June 30, 2011 into a net profit of $18.1 million.

Required:
Discuss the revenue recognition at Zynga.

Starware Software was founded last year to develop software for gaming applications. The founder initially invested

$ 800 comma 000$800,000

and received

88

million shares of stock. Starware now needs to raise a second round of​ capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest

$ 1.60$1.60

million and wants to own

31 %31%

of the company after the investment is completed.

a. How many shares must the venture capitalist receive to end up with

31 %31%

of the​ company? What is the implied price per share of this funding​ round?

b. What will the value of the whole firm be after this investment​ (the post-money​ valuation)?

Question 4 Flash Inc. was founded 5 years ago. It has been profitable for the last 2 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $1 dividend starting from today, then it will increase the dividend growth by 50% for the next two years, and then the company will achieve a long run growth rate of 7.5%. Assuming a required return of 12%, what is your estimate of the stock's intrinsic value today?

a) Calculate the Flash Inc. non-constant dividends.

b) Calculate the Flash Inc. horizon value.

c) What is the firm's intrinsic value today, P̂ 0?

Mention the appropriate BA II Plus keys (where required).

Flash Inc. was founded 5 years ago. It has been profitable for the last 2 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $1 dividend starting one year from today, then it will increase the dividend growth by 50% for the next two years, and then the company will achieve a long run growth rate of 6%. Assuming a required return of 11%, what is your estimate of the stock's intrinsic value today? a) Calculate the Flash Inc. non-constant dividends. b) Calculate the Flash Inc. horizon value. c) What is the firm's intrinsic value today, P̂ 0?

CUSTOM FABRICATIONS Inc. is a bicycle manufacturing firm founded in 2000 that currently employs 126 people. The company produces custom bicycles in its factory located near Los Angeles, CA. Each bicycle is tailored to a rider based on a number of different measurements, including height, weight, inseam, and arm length. These measurements are taken at 30 professional bicycle shops around Southern California, which are certified to size CUSTOM FABRICATIONS cycles. By accepting orders only through licensed dealers, CUSTOM FABRICATIONS ensures that each bike matches its rider precisely. CUSTOM FABRICATIONS’ custom bikes are considered extremely high quality and the company takes pride in using only the best components sourced from around the world. Accordingly, CUSTOM FABRICATIONS purchases from a cast of hundreds of suppliers, chosen for their commitment to quality and reliability. Demand for CUSTOM FABRICATIONS’ cycles has grown exponentially in recent years. The surge in demand was somewhat unexpected and the company’s factory has been operating at capacity for over a year. As a result, current orders face a production backlog of approximately 5–6 weeks. The company’s operations have been further hampered by severe inefficiencies and control weaknesses attributed to its legacy accounting system. Your firm has been hired as an outside consultant to suggest improvements in the company’s accounting procedures. The following paragraphs describe the company’s expenditure cycle. Purchases System All purchases of raw materials are initiated in the CUSTOMFABRICATIONS’ purchasing department. A clerk in the department monitors inventory levels from his PC, which is linked to the inventory subsidiary ledger. Once a part needs to be replenished, he creates a hard-copy purchase order. One copy is mailed to the vendor, a blind copy of the purchase order is sent to the warehouse, and the third copy is filed in the purchasing department. Typically within 3–5 business days, the warehouse receives the ordered parts and the packing slip from the vendor, which the warehouse clerk reconciles with the blind copy of the purchase order. Once the reconciliation is complete, the warehouse clerk prepares a three-part hard-copy receiving report stating the quantity and condition of the items received. One copy of the receiving report is sent to the general ledger department to update the digital inventory control account. The second copy is sent to the accounts payable department, and the third is sent to the purchasing department to update the inventory subsidiary ledger. Within a week, the mail room receives the supplier’s invoice, which is immediately sent to the accounts payable department. The AP clerk reconciles the invoice with the receiving report and then records a liability in the AP subsidiary ledger from the department PC. Finally, the clerk prints an AP summary from the terminal and sends it to the general ledger clerk. Cash Disbursements System The accounts payable clerk regularly checks the accounts payable subsidiary account at his terminal to ensure timely payment to vendors. For those items due for payment, he sends approval in the form of a payment voucher to the cash disbursements department. For control purposes, cash disbursements are processed manually. The details of the check are recorded in the hard-copy cash disbursements journal, and the check is mailed to the vendor. The clerk then prepares a journal voucher and sends it to the general ledger. Once the general ledger clerk receives the journal voucher, the AP summary, and the receiving report, she updates the affected general ledger accounts from the department PC. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. Describe the risks associated with these control weaknesses. e. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.

Backyard Bulldog Barbecue Sauces, Inc., founded by Jefe Allen, produces a variety of barbecue sauces for use in outdoor grilling. Jefe is having difficulty understanding the relationship between different types of costs, revenue and profit. Jefe has asked you to clarify this issue for him by answering the following questions.

1. Define the different types of costs that Backyard Bulldog Barbecue Sauces, Inc. will incur along with several examples of each.

2. How could overly optimistic sales estimates potentially harm Jefe's business?

3. Explain how cost-volume-profit analysis can help Jefe make good managerial decisions regarding Backyard Bulldog Barbecue Sauces, Inc.?

Illinois Bio Technologies

Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school.

The company started as a research and development firm, which performed its own basic research, obtained patents on promising technologies, and then either sold or licensed the technologies to other firms which marketed the products. In recent years, however, the firm has also contracted to perform research and testing for larger genetic engineering and biotechnology firm, and for the U.S. government. Since its inception, the company has enjoyed enormous success - even its founders were surprised at the scientific breakthrough made and the demand for its services. One event that contributed significantly to the firm's rapid growth had been the AIDS research. Both the U.S. government and private foundations have spent billions of dollars in AIDS research, and IBTECH had the right combination of skills to garner significant grant funds, as well as perform as a subcontractor to other firm receiving AIDS research grant.

The founders were relatively wealthy individuals when they started the company, and they had enough confidence in the business to commit most of their own funds to the new venture. Still, the capital requirement brought on by extremely rapid growth soon exhausted their personal funds, so they were forced to raise capital from outside sources. First, in 2001, the firm borrowed heavily, and then in 2003, when it used up its conventional debt capacity, it issued $15 million of preferred stock. Finally, in 2006, the firm had an initial public offering (lPO) which raised $50 million of common equity. Currently, the stock trades in the over-the-counter market, and it has been selling at about $25 per share.

IBTECH is widely recognized as the leader in an emerging growth industry, and it won an award in 2008 for being one of the 100 best-managed small companies in the United States. The company is organized into two divisions: (1) the Clinical Research Division and (2) the Genetic Engineering Division. Although the two divisions are housed in the same buildings, the equipment they use and their personnel are quite different. Indeed, there are few synergies between the two divisions. The most important synergies lay in the general overhead and marketing areas. Personnel, payroll, and similar functions are all done at the corporate level, while technical operations at the divisions are completely separate.

The Clinical Research Division conduct most of the firm' AIDS research. Since most of the grant and contracts associated with AIDS research are long-term in nature, and since billion of new dollars will likely be spent in this area, the business risk of this division is low. Conversely, the Genetic Engineering Division works mostly on in-house research and short-term contracts where the funding, duration, and payoff are very uncertain. A line of research may look good initially, but it is not unusual to hit some snag, which preclude further exploration. Because of the uncertainties inherent in genetic research, the Genetic Engineering Division is judged to have high business risk.

The founders are still active in the business, but they no longer work 70-hour week. Increasingly, they are enjoying the fruits of their past labor, and they have let professional managers take over day-to-day operations. They are all on the board of director, though, and David Roberts is chairman.

Although the firm's growth has been phenomenal, it has been more random than planned. The founders would simply decide on new avenue of research, and then count on the skills of the research teams-and good luck-to produce commercial successes. Formal decision structures were almost nonexistent, but the company's head start and its bright, energetic founder easily overcame any deficiencies in its managerial decision processes. Recently, however, competition has become stiffer, and such large biotechnology firms such as Genentech, Amgen, and even Bristol-Myers Squibb have begun to recognize the opportunities in IBTECH's research line. Because of this increasing competition, IBTECH's founders and board of directors have concluded that the firm must apply state-of-the-art technique in its managerial processes as well as in its technological processes. As a first step, the board directed the financial vice president, Gary Hayes, to develop an estimate for the firm's cost of capital and to use this number in capital budgeting decisions. Hayes, in turn, directed IBTECH's treasurer, Julie Owens, to have a cost of capital estimate on his desk in one week. Owens has an accounting background, and her primary task since taking over as treasurer has been to deal with the banks. Thus, she is somewhat apprehensive about this new assignment especially since one of the board members is her former Kean University finance professor.

Table 1

Illinois Bio Technologies, Inc.

Balance Sheet for the Year Ended December 31, 2019

(In Millions of Dollars)

To begin, Owen reviewed IBTECH's 2019 balance sheet, which is shown in Table 1. Next, she assembled the following data:

• IBTECH's long-term debt consists of 9.5 percent coupon, semiannual payment bonds with fifteen year remaining to maturity. The bonds last traded at a price of $891 per $1,000 par value bond. The bonds are not callable and they are rated BBB.
• The founders have an aversion to short-term debt, so the firm uses such debt only to fund cyclical working capital needs.
• IBTECH' federal-plus-state tax rate is 40 percent.
• The company’s preferred stock pays a dividend of $2.50 per quarter and has a par value of $100. It is non-callable and perpetual, and it is traded in over-the-counter market at a current price of $104 per share. A flotation cost of $2 per share would be required on a new issue of preferred stock.
• The firm's last dividend (D₀) was $1.09, and dividends are expected to grow at about a 10 percent rate in the foreseeable future. Some analyst expect the company' recent growth rate to continue, other expect it to go to zero as new competition enter the market, but the majority anticipate that a growth rate of about 10 percent will continue indefinitely.
• An important minority of analyst have noted that over the last few years, the company has had a 14 percent average return on equity (ROE) and has paid out about 25 percent of its net income as dividends. They believe the firm' expected future growth rate, g should be based on this information and used to estimate the cost of capital.
• The firm's per share dividend payment over the past five year has been a follow

• IBTECH’s common stock now sells at a price of about $25 per share. The company has 5 million common shares outstanding.
• The current yield on long-term T-bonds is 8 percent, and a prominent investment-banking firm has recently estimated that the market risk premium is six percentage points over Treasury bond. The firm' historical beta, as measured by several analysts who follow the stock, is 1.2.
• The required rate of return on an average (A-rated) company's long-term debt is 10 percent.
• IBTECH is forecasting reinvested earnings of $1,800,000 and depreciation of 4,500,000 for the coming year.
• IBTECH's investment banker believes that a new common tack issue would involve total flotation costs - including underwriting costs, market pressure from increased supply, and market pressure from negative signaling effect- of 30 percent.
• The market value target capital structure call for 30 percent long-term debt, 10 percent preferred stock, and 60 percent common stock.

Now assume that you were recently hired as Julie Owen’s assistant, and she has given you the task of helping her develop the firm's cost of capital. You will also have to meet with Gary Hayes and, possibly, with the president and the full board of directors (including the Kean University Professor) to answer any question they might have. With this in mind, Owens wrote up the following questions to get you started with your analysis. Answer them, but keep in mind that you could be asked further questions about your answer, so be sure you understand the logic behind any formula or calculation you use. In particular, be aware of potential conceptual or empirical problems that might exist.

9. What is your estimate of IBTECH's cost of new common stock, r_e? What are some potential

Illinois Bio Technologies

Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school.

The company started as a research and development firm, which performed its own basic research, obtained patents on promising technologies, and then either sold or licensed the technologies to other firms which marketed the products. In recent years, however, the firm has also contracted to perform research and testing for larger genetic engineering and biotechnology firm, and for the U.S. government. Since its inception, the company has enjoyed enormous success - even its founders were surprised at the scientific breakthrough made and the demand for its services. One event that contributed significantly to the firm's rapid growth had been the AIDS research. Both the U.S. government and private foundations have spent billions of dollars in AIDS research, and IBTECH had the right combination of skills to garner significant grant funds, as well as perform as a subcontractor to other firm receiving AIDS research grant.

The founders were relatively wealthy individuals when they started the company, and they had enough confidence in the business to commit most of their own funds to the new venture. Still, the capital requirement brought on by extremely rapid growth soon exhausted their personal funds, so they were forced to raise capital from outside sources. First, in 2001, the firm borrowed heavily, and then in 2003, when it used up its conventional debt capacity, it issued $15 million of preferred stock. Finally, in 2006, the firm had an initial public offering (lPO) which raised $50 million of common equity. Currently, the stock trades in the over-the-counter market, and it has been selling at about $25 per share.

IBTECH is widely recognized as the leader in an emerging growth industry, and it won an award in 2008 for being one of the 100 best-managed small companies in the United States. The company is organized into two divisions: (1) the Clinical Research Division and (2) the Genetic Engineering Division. Although the two divisions are housed in the same buildings, the equipment they use and their personnel are quite different. Indeed, there are few synergies between the two divisions. The most important synergies lay in the general overhead and marketing areas. Personnel, payroll, and similar functions are all done at the corporate level, while technical operations at the divisions are completely separate.

The Clinical Research Division conduct most of the firm' AIDS research. Since most of the grant and contracts associated with AIDS research are long-term in nature, and since billion of new dollars will likely be spent in this area, the business risk of this division is low. Conversely, the Genetic Engineering Division works mostly on in-house research and short-term contracts where the funding, duration, and payoff are very uncertain. A line of research may look good initially, but it is not unusual to hit some snag, which preclude further exploration. Because of the uncertainties inherent in genetic research, the Genetic Engineering Division is judged to have high business risk.

The founders are still active in the business, but they no longer work 70-hour week. Increasingly, they are enjoying the fruits of their past labor, and they have let professional managers take over day-to-day operations. They are all on the board of director, though, and David Roberts is chairman.

Although the firm's growth has been phenomenal, it has been more random than planned. The founders would simply decide on new avenue of research, and then count on the skills of the research teams-and good luck-to produce commercial successes. Formal decision structures were almost nonexistent, but the company's head start and its bright, energetic founder easily overcame any deficiencies in its managerial decision processes. Recently, however, competition has become stiffer, and such large biotechnology firms such as Genentech, Amgen, and even Bristol-Myers Squibb have begun to recognize the opportunities in IBTECH's research line. Because of this increasing competition, IBTECH's founders and board of directors have concluded that the firm must apply state-of-the-art technique in its managerial processes as well as in its technological processes. As a first step, the board directed the financial vice president, Gary Hayes, to develop an estimate for the firm's cost of capital and to use this number in capital budgeting decisions. Hayes, in turn, directed IBTECH's treasurer, Julie Owens, to have a cost of capital estimate on his desk in one week. Owens has an accounting background, and her primary task since taking over as treasurer has been to deal with the banks. Thus, she is somewhat apprehensive about this new assignment especially since one of the board members is her former Kean University finance professor.

Table 1

Illinois Bio Technologies, Inc.

Balance Sheet for the Year Ended December 31, 2019

(In Millions of Dollars)

To begin, Owen reviewed IBTECH's 2019 balance sheet, which is shown in Table 1. Next, she assembled the following data:

• IBTECH's long-term debt consists of 9.5 percent coupon, semiannual payment bonds with fifteen year remaining to maturity. The bonds last traded at a price of $891 per $1,000 par value bond. The bonds are not callable and they are rated BBB.
• The founders have an aversion to short-term debt, so the firm uses such debt only to fund cyclical working capital needs.
• IBTECH' federal-plus-state tax rate is 40 percent.
• The company’s preferred stock pays a dividend of $2.50 per quarter and has a par value of $100. It is non-callable and perpetual, and it is traded in over-the-counter market at a current price of $104 per share. A flotation cost of $2 per share would be required on a new issue of preferred stock.
• The firm's last dividend (D₀) was $1.09, and dividends are expected to grow at about a 10 percent rate in the foreseeable future. Some analyst expect the company' recent growth rate to continue, other expect it to go to zero as new competition enter the market, but the majority anticipate that a growth rate of about 10 percent will continue indefinitely.
• An important minority of analyst have noted that over the last few years, the company has had a 14 percent average return on equity (ROE) and has paid out about 25 percent of its net income as dividends. They believe the firm' expected future growth rate, g should be based on this information and used to estimate the cost of capital.
• The firm's per share dividend payment over the past five year has been a follow

• IBTECH’s common stock now sells at a price of about $25 per share. The company has 5 million common shares outstanding.
• The current yield on long-term T-bonds is 8 percent, and a prominent investment-banking firm has recently estimated that the market risk premium is six percentage points over Treasury bond. The firm' historical beta, as measured by several analysts who follow the stock, is 1.2.
• The required rate of return on an average (A-rated) company's long-term debt is 10 percent.
• IBTECH is forecasting reinvested earnings of $1,800,000 and depreciation of 4,500,000 for the coming year.
• IBTECH's investment banker believes that a new common tack issue would involve total flotation costs - including underwriting costs, market pressure from increased supply, and market pressure from negative signaling effect- of 30 percent.
• The market value target capital structure call for 30 percent long-term debt, 10 percent preferred stock, and 60 percent common stock.

Now assume that you were recently hired as Julie Owen’s assistant, and she has given you the task of helping her develop the firm's cost of capital. You will also have to meet with Gary Hayes and, possibly, with the president and the full board of directors (including the Kean University Professor) to answer any question they might have. With this in mind, Owens wrote up the following questions to get you started with your analysis. Answer them, but keep in mind that you could be asked further questions about your answer, so be sure you understand the logic behind any formula or calculation you use. In particular, be aware of potential conceptual or empirical problems that might exist.

1. Cost of reinvested earnings using CAPM:
   1. Why is there a cost associated with reinvested earnings?
   2. What is IBTECH's estimated cost of reinvested earning using the CAPM approach?
   3. Why might one consider the T-bond rate to be a better estimate of the risk-free rate than the T-bill rate? Can you think of an argument that would favor the use of the T-bill rate?
   4. How can IBTECH obtain a market risk premium for use in a CAPM cost-of-equity calculation? Discuss both the possibility of obtaining an estimate from some other organization and also the ways in which IBTECH could calculate a market risk premium in-house.
   5. Calculate the cost of reinvested earnings (r_s ) using CAPM

Forecasting: Measuring Forecast Accuracy

Tires for You, Inc. (TFY), founded in 1987, is an automotive repair shop specializing in replacement tires. Located in Altoona, Pennsylvania, TFY has grown successfully over the past few years because of the addition of a new general manager, Ian Overbaugh. Since tire replacement is a major portion of TFY’s business (it also performs oil changes, small mechanical repairs, etc.), Ian was surprised at the lack of forecasts for tire consumption for the company. His senior mechanic, Skip Grenoble, told him that they usually stocked for this year what they sold last year. He readily admitted that several times throughout the season, stockouts occurred and customers had to go elsewhere for tires. Although many tire replacements were for defective of destroyed tires, most tires were installed on cars whose original tires had worn out. Most often, four tires were installed at the same time. Ian was determined to get a better idea of how many tires to hold in stock during the various months of the year. Listed below is a summary of individual tire sales by month.

Period 2010 October November December 2011 January February March April May June July August September October November December Tires Used 9,800 11,000 11,000 9,700 8,800 9,300 10,700 9,300 8,700 10,200 10,800 9,700 10,200 11,600 11,100

Ian has hired you to determine the best technique for forecasting TFY demand based on given data.

1. Calculate forecasts for August, 2011 through December 2011 using a simple four-month moving average. Round your answers to the whole number.

Period 2011 August September October November December Forecasts

2. Calculate forecasts for August, 2011 through December 2011 using the exponential smoothing method with α = 0.4. Assume the forecast for August, 2011 is 11,000. Round your answers to the whole number.

Period 2011 August September October November December Forecasts 11,000

3. Calculate the forecast errors, the MAD, the MSE, and the MAPE for the forecasts you made in Question 1. Use the actual sales data for 2011. Round your answers to the whole number.

Period August September October Actual Sales 10,800 9,700 10,200 Forecasts Errors Absolute Error Error2 Absolute % Error November 11,600 December 11,100 MAD= MSE= MAPE= 2

4. Calculate the forecast errors, MAD, MSE, and MAPE for the forecasts you made in Question 2. Use the actual sales data for 2011 given below. Round your answers to the whole number.

Period August September October Actual Sales Forecasts 10,800 11,000 9,700 Errors Absolute Error Error2 Absolute % Error 10,200 November 11,600 December 11,100 MAD= MSE= MAPE=

5. Based on the two methods used to calculate forecasts for TFY, which method produced the best forecast? The moving average method or the exponential smoothing method?

Stock Valuation at Ragan, Inc.

Ragan, Inc., was founded nine years ago by brother and sister, Carrington and Genevieve Ragan. The company manufactures and installs heating, ventilation and cooling (HVAC) units. Ragan, Inc., has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of stock in the company. In the event either wished to sell their stock, the shares first would have to be offered to the other at a discounted price.

            Although neither sibling wants to sell, they have decided that they should determine the value of their ownership in the company. To get started, they have gathered information about their main competitors, provided in the table on the next page.

            One of their competitors, Expert HVAC Corp., had negative Earnings Per Share last year, due the result of a one-time accounting write-off. Had the write-off not occurred, Earnings Per Share for that company would have been $1.10. The Return On Equity for Expert HVAC Corp is based on net income excluding the one-time write-off.

            Last year, Ragan, Inc., had an Earnings Per Share of $3.15 and paid a dividend to Carrington and Genevieve of $45,000 each. The company also had a Return On Equity of 17 percent. The siblings believe that 14 percent is an appropriate required return for the company.

(continued on next page)

2) To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst who covered the HVAC industry. Josh has examined the company’s financial statements, as well as examining its competitors’ financials. Although Ragan, Inc. currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company’s competitive advantage will only last for the next five years. After that time period, the company’s growth will likely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your estimate for the stock price of Ragan, Inc.?