Stock Valuation at Ragan Engines

Equity shares held by Carrington

Equity shares held by Genevieve
Total
EPS for ragan
ROE
DPS
Rqd return
Total Dividend paid
Total earning

150,000
150,000
300,000

5.35
0.21
2.13
0.18
640,000
1605000

1 Growth rate= Retention ratio* ROE

Retention ratio
0.601246106
ROE
0.21
g
0.13
Value of stock at constant growth of dividend

44.859362319

2 The company will have constant growth for 5 years at g=0.13

Estimated stock price after 5 years

c/(R-g){1-(1+g)^t/(1+R)^t

Estimated price post 5 years

div at 6th year/(R-g2)/(1+R)^5

Divident at 5th year

Dividend at 6th year

7.90854
8.379802315

industry avg growth rate

0.059589041

SO total stock price

54.3301

Name
Blue Ribband Motors Corp
Bon Voyage Marine INC
Nautilus Marine Engines
Industry average

Data for the competitors

EPS
DPS
Stock Price ROE
1.09
0.19
16.32
10.00%
1.26
0.55
13.94
12.00%
-0.27
0.57
23.97 NA
0.73
0.44
18.08 11.00%

3 Industry P/E

considering the price of ragan stock in problem 2

The industry has a higher P/E ratio than ragan. It

8.29422

46.035831574

4 We know P= (EPS/R)+NPVGO
46.03=
35.666666667 Adding NPVGO
NPVGO = 10.363333333
NPVGO%
23%

5 A lesser growth rate will assume a lesser income

6 Ragan promoters should try to generate the max

P/E
12.00% 14.97248
17.00% 11.06349
16.00% NA
15.00% 24.7671

24.7671

an stock in problem 2 as the actual price (P/E)

8.60483

/E ratio than ragan. It shows that the stock of ragan is under valued and the price is expected to rise in the mar

dding NPVGO

sume a lesser income and a lesser return on equity

y to generate the maximum profit so that sentiment in the market improves and the price increases. The compa

pected to rise in the market given the conditions

ce increases. The company has a potential to grow the P/E 3 times in comparison to the industry avg.

e industry avg.