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From the following: What is the industry average price–earnings ratio? What is Ragan’s price-earnings ratio? And Comment on any differences and explain why they may exist.

From the following: What is the industry average price–earnings ratio? What is Ragan’s price-earnings ratio? And Comment on any differences and explain why they may exist.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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From the following: What is the industry average price–earnings ratio? What is Ragan’s price-earnings ratio? And Comment on any differences and explain why they may exist.
Ragan Thermal Systems, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its systems. The company is equally owned by Carrington and Genevieve. The original agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell the stock, the shares first had to be offered to the other at a discounted price. Although neither sibling wants to sell any shares at this time, they have decided they should value their holdings in the company for financial planning purposes. To accomplish this, they have gathered the following information about their main competitors. Ragan Thermal Systems, Inc., Competitors EPS DPS Stock Price ROE $ .82 1.32 $ .16 $15.19 12.49 10% Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry average 11% .52 14 13 -47 .54 48.60 14 12 $0.56 $0.41 $25.43 13% 11.67% Expert HVAC Corp.'s negative earnings per share (EPS) were the result of an accounting write- off last year. Without the write-off, EPS for the company would have been $2.34. Last vear, Ragan had an EPS of $4.32 and paid a dividend to Carrington and Genevieve of $54.000 each. The company also had a return on equity of 25 percent. The siblings believe a required return for the company of 20 percent is appropriate,
Transcribed Image Text:Ragan Thermal Systems, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Ragan. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Ragan has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its systems. The company is equally owned by Carrington and Genevieve. The original agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell the stock, the shares first had to be offered to the other at a discounted price. Although neither sibling wants to sell any shares at this time, they have decided they should value their holdings in the company for financial planning purposes. To accomplish this, they have gathered the following information about their main competitors. Ragan Thermal Systems, Inc., Competitors EPS DPS Stock Price ROE $ .82 1.32 $ .16 $15.19 12.49 10% Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry average 11% .52 14 13 -47 .54 48.60 14 12 $0.56 $0.41 $25.43 13% 11.67% Expert HVAC Corp.'s negative earnings per share (EPS) were the result of an accounting write- off last year. Without the write-off, EPS for the company would have been $2.34. Last vear, Ragan had an EPS of $4.32 and paid a dividend to Carrington and Genevieve of $54.000 each. The company also had a return on equity of 25 percent. The siblings believe a required return for the company of 20 percent is appropriate,
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