Stock Valuation at Ragan, Inc Nautilus Marine Enginees negative EPS wer the result of an accouting write off last year. Without the write-off, EPS for the company would have been 1. 97. Last year, Ragan had an EPS of 5. 08 and paid a dividend to Carrington and Genevieve of 320,000 each. The company also had a return on equity of 25 percent. Larissa tells Dan that required return for Ragan of 20 percent is appropriate. 1 . Assuming the company continues its current growth rate, what is the value per share of the company’s stock? Solution: The total dividend paid by the company was $640,000.
Since there are 150,000 shares utstanding, The total earnings for the company were: Total earnings = = $762,000 This means the payout ratio was: payout ratio = = 0. 84 So, the retention ratio was: Retention ratio = 1 . 84 = 0. 16 Using the retention ratio, the companys growth rate is: ROE b = . 04 or Now we can value the company using the entire dividend payment. The total value of the companys equity under these assumptions is: Total equity value = Dl / (R g) Total equity value = / (. 20 . 04) Total equity value = So, the value per share is: value per share = / 150,000 Value per share = $27. 73 Total equity value = $4,160,000