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Project 1 is the Fundamental Analysis of Reagan Technologies, Incorporated to explore its
current financial position and identify possible shortcomings and future threats. Your
fundamental analysis will examine the present stock price, dividend payout ratio, earnings per
share, price-earnings ratio, and the company’s growth rate. In addition, this method is used to
investigate stock valuation indicators. You can use an MS Excel spreadsheet to make your
calculations.
Overview of the Company
The brothers Robert Reagan and Thomas Reagan formed Reagan Technologies. The company
has earned healthy profits for the past ten years. The reason behind this is the unique
technology the company uses. The company is in the business of providing plastic computer
parts for personal computers. Reagan Technologies has 300,000 shares outstanding for the
company. Each brother owns 150,000 shares. The total dividends of the company were
$640,000. The return on equity (ROE) is 21%. The Reagan Technologies required rate of return
is 18%.
INSTRUCTOR HINTS
Hint for Question 1: The earnings per share are $5.35. Check the case for how many shares
are outstanding. Multiply the earnings per share by the total shares outstanding for the total
earnings.
Hint for Question 2: The case provides the dividend payout amount. The dividend payout
amount divided by the total earnings is the payout ratio.
Hint for Question 3: The opposite of the payout ratio is the retention ratio. The two ratios
together would = 100%.
That should help you get the first three questions.
The Stock Valuation of Reagan Technologies Inc.
1. What are the total earnings? (14 points)
2. What is the payout ratio? (14 points)
3. What is the retention ratio? (14 points)
4. What is the company’s growth rate? (14 points)
5. What is the total equity value of the company? (14 points)
6. What is the value per share? (14 points)
7. The industry growth rate is 7.81% and the industry PE is $18.08 / $1.51 = 12.00. Compare
Reagan Technologies with the industry’s growth and PE rates. What are the reasons for
the differences? Will this affect future growth? (40 to 60 words) (16 points)
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