Stock and Company
Stock Valuation at Ragan, Inc
Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1.97. Last year, Ragan had an EPS of 5.08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate. 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock?
Solution:
The total dividend paid by the company was $640,000. Since there are 150,000 shares outstanding, The total earnings for the company were:
Total earnings = 150,000($5.08) = $762,000
This means the payout ratio was:
Payout ratio = $640,000/$762,000 = 0.84
So, the retention ratio was:
Retention ratio = 1 .84 = 0.16
Using the retention ratio, the companys growth rate is: g = ROE b = .25(.16) = .04 or 4%
Now we can value the company using the entire dividend payment. The total value of the companys equity under these assumptions is:
Total equity value = D1 / (R g)
Total equity value = $640,000(1.04) / (.20 .04)
Total equity value = $4,160,000
So, the value per share is:
Value per share = $4,160,000 / 150,000
Value per share = $27.73
Stock Valuation at Ragan, Inc
Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1.97. Last year, Ragan had an EPS of 5.08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate. 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock?
Solution:
The total dividend paid by the company was $640,000. Since there are 150,000 shares outstanding, The total earnings for the company were:
Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1.97. Last year, Ragan had an EPS of 5.08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate. 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock?
Solution:
The total dividend paid by the company was $640,000. Since there are 150,000 shares outstanding, The total earnings for the company were:
Total earnings = 150,000($5.08) = $762,000
This means the payout ratio was:
Payout ratio = $640,000/$762,000 = 0.84
So, the retention ratio was:
Retention ratio = 1 .84 = 0.16
Using the retention ratio, the companys growth rate is: g = ROE b = .25(.16) = .04 or 4%
Now we can value the company using the entire dividend payment. The total value of the companys equity under these assumptions is:
Total equity value = D1 / (R g)
Total equity value = $640,000(1.04) / (.20 .04)
Total equity value = $4,160,000
So, the value per share is:
Value per share = $4,160,000 / 150,000
Value per share = $27.73
Stock Valuation at Ragan, Inc
Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1.97. Last year, Ragan had an EPS of 5.08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate. 1. Assuming the company continues its current growth rate, what is the value per share of the company's stock?
Solution:
The total dividend paid by the company was $640,000. Since there are 150,000 shares outstanding, The total earnings for the company were: