Project II Requirements and Case Study on Siddle Inc

Instructions

1. This is an individual-based project. However, you are allowed to work with other individuals to pin down the required information and then to interpret your results.

 

2. The report should be less than 5 pages plus up to 5 pages of appendix.

 

3. In your submitted written report, you should (a) clearly answer the questions you are asked to address, for instance by describing the process of your calculations, (b) clearly state and briefly discuss all the key assumptions you have made, (c) provide summary tables of your calculation results, (d) include key formulas that you have used and, (e) if applicable, list any reference articles and/or other sources that you have used.

 

4. Outside research will likely be required in order to complete the project.

 

5. Acceptable submission formats include Microsoft Word or Pdf (ONE file only), Less than 4MB.

 

6. Submission file name should be “LastName FirstName ID Project II”.

 

7. Make sure that your full name and ID are on the title page.

 

8. I expect honesty and integrity from my students. Cheating of any sort will be dealt with as sternly as University policy allows.

 

8. I expect honesty and integrity from my students. Cheating of any sort will be dealt with as sternly as University policy allows.
 
9. Please refer to Academic Integrity & Code of Conduct within the course outline.
 
10. Good Luck!

Siddle Inc.

This is a modified version of Ch.8 Mini Case, in the textbook (10th CAN edition, p.291).
 
Siddle Inc. was founded nine years ago by brother and sister Wendy and Peter Siddle. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Siddle Inc. has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Wendy and Peter. The original partnership agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discounted price.

 

Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered information about their main
competitors, summarized in the table below.

In addition, they found that Expert HVAC Corporation’s negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per
share for the company would have been $l.10, Last year, Siddle Inc. had an EPS of $3.75 and paid a dividend to Wendy and Peter of $48,000 each. The-company also had a return on equity of 17%. The siblings believe that 14% is an appropriate required return for the company.

 

 

1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock?

2. To verify their calculations, Wendy and Peter have hired David Boon as a consultant. David was previously an equity analyst and covered the HVAC industry. David has examined the company’s financial statements, as well as its competitors. Although Siddle Inc. currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, David believes that the company’s technological advantage will last only for the next five years. After that period, the company’s growth will likely slow to the industry growth average. Additionally, David believes that the required return used by the company is too high. He believes the industry average required return
is more appropriate. Under this growth rate assumption, what is your estimate of the stock price?

3. What is the industry average P/E ratio? What is the P/E ratio for Siddle Inc.? Is this the relationship you would expect between the two ratios? Why?

4. Assume the company’s growth rate slows to the industry average in five years. What future return on equity does this imply, assuming a constant payout ratio?