SPRING 2015 ASSIGNMENT CORPORATE FINANCE (FIN 440) INSTRUCTOR: KAMRUL HUDA TALUKDAR, SCHOOL OF BUSINESS AND ECONOMICS NORTH SOUTH UNIVERSITY
CASE STUDY Read the case ‘Stock Valuation at Ragan, Inc.’ on page-258 and answer the following questions 1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock? 2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company’s financial statements, as well as examining its competitors. 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 technological advantage will last only for the next five years. After that 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 of the stock price? 3. What is the industry average price–earnings ratio? What is the price–earnings ratio for Ragan, Inc.? Is this the relationship you would expect between the two ratios? Why?