Columbia Southern University Operations And Supply Chain Management Assignment Help - Stock Valuation

Question - Larissa has been talking with the company's director about the future of East Coast Yachts. To this
point, the company has used outside suppliers for various key components of the company's yachts,
including engines. Larissa has decided that East Coast Yachts should consider the purchase of an
engine manufacturer to allow East Coast Yachts to better integrate its supply chain and get more
control over engine features. After investigating several possible companies, Larissa feels that the
purchase of Ragan Engines, Inc., is a possibility. She has asked Dan Ervin to analyze Ragan's value.
Ragan Engines Inc., was founded nine years ago by a brother and a sister ' Carrington and
Genevieve Ragan ' and has remained a privately owned compan ...Read More y. The company manufactures
marine engines for a variety of applications. Ragan has experienced rapid growth because of a
proprietary technology that increases the fuel efficiency of its engines with very little sacrifice in
performance. The company is equally owned by Carrington and Genevieve the original agreement
between the siblings gave each 150,000 shares of stock. Larissa has asked Dan to determine a value
per share of Ragan stock. To accomplish this, Dan has gathered the following information about some
of Ragan's competitors that's publically traded: EPS DPS Stock Price ROE R Blue Ribband Motors
Corp $ 1.09 $ 0.19 $ 16.32 10% 12% Bon Voyage Marine, Inc. $ 1.26 $ 0.55 $ 13.94 12% 17%
Nautilus Marine Engines $ (0.27) $ 0.57 $ 23.97 N/A 16% Industry Average $ 0.73 $ 0.44 $ 18.08
11% 15% Nautilus Marine Engine's negative earnings per share (EPS) were the result of an
accounting write-off last year. W ithout the write-off, EPS for the company would have been $2.07. last
year, Ragan had an EPS of $5.35 and paid dividend to Carrington and Genevieve of $320,000 each.
The company also had a return for Ragan of 18 percent is appropriate. 1. Assuming the company
continues its current growth rate, what is the value per share of the company's stock? 2. Dan has
examined the company's financial statements as well as examining those of its competitors. Although
Ragan currently has 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 will likely slow to the
industry average. Additionally, Dan believes that the required return of the company is too high. He
believes the industry average return is more appropriate. Under Dan's assumptions, what is the
estimated stock price? 3. What is the industry average price-earnings ratio? What s Ragan's price-
earnings ratio? Comment on any differences and why they may exist. 4. Assume the company's
growth rate declines to industry average after five years. What percentage of the stock's value is
attributable to growth opportunities? 5. Assume the company's growth rate declines to industry
average in five years. What future return on equity does this imply? 6. Carrington and Genevieve are
not sure if they should sell the company. If they do not sell the company outright to East Coast
Yachts, they would like to try and increase the value of the company's stock. In this case, they want to
retain control of the company and do not want to sell stock to outside investors. They also feel that the
company's debt is at a manageable level and do not want to borrow more money. What steps can
they take to try and increase the price of the stock? Are there any conditions under which this strategy
would not increase the stock price ...Read Less

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