Book1
xlsx
keyboard_arrow_up
School
Orange Coast College *
*We aren’t endorsed by this school
Course
MISC
Subject
Industrial Engineering
Date
Dec 6, 2023
Type
xlsx
Pages
6
Uploaded by mimi192
Chapter 7 Homework - Part II
Total points: 5
Stock price
Competitor A
$1.30 $0.16 $25.34 8.50%
Competitor B
$1.95 $0.23 $29.85 10.50%
Competitor C
($0.37)
$0.14 $22.13 9.78%
Industry Average
$0.96 $0.18 $25.77 9.59%
Question 1
Assuming the company continues its current growth rate, what is the value per share of company
Question 2
Happy, Inc. was founded 9 years ago by siblings Brandon and Rachael Happy. The company man
installs commercial heating, ventilation, and cooling (HVAC) units. Happy, Inc. experienced rapid g
a proprietary technology that increases the energy efficiency of its units. The company is equally o
and Rachael.The original partnership agreement between the siblings gave each 50,000 shares o
event either wished to sell stock, the shares first had to be offered to the other at a discounted pri
neither sibling wants to sell, they had decided they should value their holdings in the company. To
have gathered the following information about their main competitors:
Earnings per share (EPS)
Dividends per share (DPS)
Return on Equity (ROE)
Competitor C's negative earnings per share were the result of an accounting write-off last year. W
earnings per share for the company would have been $1.10.
Last year, Happy, Inc. had an EPS of $3.15 and paid a dividend to Brandon and Rachael of $45,0
company also had a return on equity of 17 percent. The siblings believe that 14 percent is an app
return for the company.
Complete the boxes in yellow highlighted area to answer the two questions.
Here are some basic facts to get you started:
50,000
Happy EPS
$3.15 $45,000 Happy ROE
17%
14%
Complete the following output areas to answer the questions
Total dividends
Total earnings
hint: EPS x shares outstanding
Retention ratio
this is the percentage of earnings not paid out in dividends
Growth rate
hint: retention ratio x ROE
To verify their calculations, Brandon and Rachael hired ABC Consultants, an equity analysts that c
industry. ABC has examined the company's financial statements as well as those of its competitor
Happy, Inc. currently has technological advantage, their research indicates that other companies methods to improve efficiency. Given this, ABC believes that the company's technological advanta
for the next five years. After that period, the company's growth will likely slow to the industry grow
Additionally, ABC believes that the required return used by the company is too high. ABC believes
average required return is more approrpriate. Under this growth rate assumption, what is your est
price?
Shares owned by each sibling
Dividend to each sibling
Happy required return
Current dividend per share
Value per share
Industry EPS
hint: for competitor C, use the expert EPS w/o write-off
Year
Dividends/share
hint: use the following growth rates to fill in the shaded are
1
Company growth rate
2
Company growth rate
3
Company growth rate
4
Company growth rate
5
Company growth rate
6
INDUSTRY growth rate
Stock price today
Dividend per share next year
Question 1 Answer:
Industry payout ratio
Industry retention ratio
Industry growth rate
Stock value in Year 5
Question 2 Answer:
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Required Return
10.00%
13.00%
12.00%
11.67%
y's stock?
nufactures and growth because of owned by Brandon of stock. In the ice. Although o get started, they Without the write-off, 000 each. The propriate required
s
covers the HVAC rs. Although are investigating age will last only wth average. s the industry timate of the stock
ea
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help