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Case - Ragan Engines Group 9

This document contains information about the stock valuation of Ragan Engines including: 1) Financial information of Ragan Engines and comparable companies in the industry. Ragan Engines has an ROE of 18% and is expected to grow dividends at 13.24% annually. 2) Calculations to determine the stock price of Ragan Engines using the constant growth model and differential growth model. The constant growth model yields a stock price of Rs. 28.56 and the differential growth model yields a stock price of Rs. 47.80. 3) Analysis that 47% of Ragan Engines' total stock value is attributable to high expected future growth, and the ROE under differential growth

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Ujjwal Batra
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110 views9 pages

Case - Ragan Engines Group 9

This document contains information about the stock valuation of Ragan Engines including: 1) Financial information of Ragan Engines and comparable companies in the industry. Ragan Engines has an ROE of 18% and is expected to grow dividends at 13.24% annually. 2) Calculations to determine the stock price of Ragan Engines using the constant growth model and differential growth model. The constant growth model yields a stock price of Rs. 28.56 and the differential growth model yields a stock price of Rs. 47.80. 3) Analysis that 47% of Ragan Engines' total stock value is attributable to high expected future growth, and the ROE under differential growth

Uploaded by

Ujjwal Batra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Name Roll Number

ANKUR JAIN 21P186


KESHAV NARAYAN 21P200
PRIYA TEKRIWAL 21P215
SHREETOMA BAG 21P225
STUTI SARKAR 21P230
UJJWAL SANJAY BATRA 21P235
Case - Stock Valuation at Ragan Engines

Given
No. of Stocks
Carrington Ragan 50000
Genevieve Ragan 50000

Industry Scenario
EPS DPS Stock Price
Blue Ribband Motor Corp. 0.81 0.2 14.18
Bon Voyage Marine Inc. 1.38 0.62 11.87
Nautilus Marine Engines -0.46 0.38 13.21
Industry Average 0.58 0.404 13.09

Ragan Engines 4.54 1.2

Solution
Total Earnings 454000
Dividend Distributed 120000
Retained Earnings 334000
Retention Ratio 73.57%
Return on Equity 18%
Growth Rate (g) dividend growth rate 13.24%

Industry Average EPS 1.26


Industry Average DPS 0.404
Retained Earnings 0.86
Retention Ratio 68.02%
Industry ROE 12.33%
Industry Growth Rate 8.39%
Return 11.67%
ROE R
10% 10%
13% 13%
14% 12%
12.33% 11.67%

18% 18%

for q1
po = d1/(R-g) d1 1.3589074889868
R 18%
g 13.24%
Po 28.562222222222

for q2
for first 5 years year 1 2 3 4
g 13.24% fv dividend 1.358907 1.538858 1.742638 1.973403
R 18.00% pv at 0th yr 1.151617 1.105184 1.060623 1.017859

for thereafter
g 8.39% year 6
R 11.67% fv dividend 2.422154
pv at 5th yr for all
growing annuity
cashflows 73.77873
pv at 0th yr 42.48627

total pv at 0th yr 47.79837

for q3

p/e industry 10.36


p/e ragan 6.29 as per constant growth
p/e ragan 10.53 as per differential growth
for q4
Total Stock Value 4779836.9252
E/R 2522222.2222

% attributable to
growth 47%

for q5
roe in differential growth case
g 8.39%
R 11.67%
Retention Ratio 73.57%
ROE 11.40%

for q6
1. increase operating profit to increase dividend
2. R can be decreased but it is less feasible since independent analysts will use higher R
3. g to be increased implies higher company growth possible through higher ms
5
2.234727
0.97682

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