Larissa has been talking with the company’s directors about thefuture of East Coast Yachts. To this point, the company has usedoutside suppliers for various key components of the company’syachts, including engines. Larissa has decided that East CoastYachts should consider the purchase of an engine manufacturer toallow East Coast Yachts to better integrate its supply chain andget more control over engine features. After investigating severalpossible companies, Larissa feels that the purchase of RaganEngines, Inc., is a possibility. Ragan Engines, Inc., was foundednine years ago by a brother and sister—Carrington and GenevieveRagan—and has remained a privately owned company. The companymanufactures marine engines for a variety of applications. Raganhas experienced rapid growth because of a proprietary technologythat increases the fuel efficiency of its engines with very littlesacrifice in performance. The company is equally owned byCarrington and Genevieve. The original agreement between thesiblings gave each 150,000 shares of stock. Last year, Ragan had anEPS of $5.35 and paid a dividend to Carrington and Genevieve of$320,000 each. The company also had a return on equity of 21percent. Larissa tells Dan that a required return for Ragan of 18percent is appropriate.

Assuming the company continues its current growth rate, what isthe value per share of the company’s stock? You must show all yourworks for the full credits.

Step 1: Find total earnings

Step 2: Find payout ratio

Step 3: Find retention ratio

Step 4: Find growth ratio

Step 5: Find total equity value

Step 6: Find value per share