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 Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry average $.82 $.16 $15.19 11% 10% 1.32 .52 12.49 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 year, 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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3. What is the industry average price–earnings ratio? What is Ragan’s price–earnings ratio? Comment on any differences and explain why they may exist. 4. Assume the company’s growth rate declines to the industry average after five years. What percentage of the stock’s value is attributable to growth opportunities?
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
Arctic Cooling, Inc.
National Heating & Cooling
Expert HVAC Corp.
Industry average
$.82
$.16
$15.19
11%
10%
1.32
.52
12.49
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 year, 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 Arctic Cooling, Inc. National Heating & Cooling Expert HVAC Corp. Industry average $.82 $.16 $15.19 11% 10% 1.32 .52 12.49 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 year, 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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