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Siddle Inc.

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by

Moe Aloul

on 6 December 2013

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Transcript of Siddle Inc.

Siddle Inc.
Company's Background
Supernormal Growth
- David Boon recommendation
o Required return adjustment and growth rate adjustment
- EPS industry average= (0.79+1.38+1.06)/3= 1.08
- Retention rate= 1-(.40/1.08) = 0.6396
- Industry growth rate= 0.1223(0.6396) = 0.0776


Price/Earning ratio
Price earnings ratio=Market value/EPS


Industry Average Price Earnings Ratio = 76.71/4.54= 16.90

Siddle Inc. Price Earnings Ratio= 64.95/4.54= 14.31

Manufactures and installs commercial heating, ventilation, and cooling (HVAC) unitts
Industry
. Owned by Wendy and
Peter Siddle.
. Nine years old.
Constant Growth valuation
P0= D1/(r-g)
D1= $126,000/100,000 shares
= $1.26/shares
Retention rate (b)= 1-Payout ratio
= 1-(1.26/4.54)
= .7225 = 72.25%
Growth rate= .25 * .72246= .1806=18.06%
P0= 1.26/(.20-.1806) =$64.95
P0= Po= [1.26(1.1806)]/1.1167+ [1.26(1.1806)^2]/1.1167^2+[1.26(1.1806)^3]/1.1167^3+[1.26(1.1806)^4]/1.1167^4+[1.26(1.1806)^5]/1.1167^5+[1.26(1.1806)^5(1.0776)]/1.1167^5
Po= $53.33

- 0.0776= ROE(0.7224)
- ROE= 0.0776/0.7224
- ROE= 0.1074
- ROE would go down assuming payout ratio is constant and growth rate matches the industry average in five years


Sell stocks in the form of preferred stocks
· Do not carry voting rights
· Allow owners to retain control over their company
· Attractive to investors
- First in line to receive dividends
- Convertible to common shares
- The right to sell back the shares to the
issuer at an agreed upon price
· Preferred shares are callable owners are able to buy back the common shares at any time
Future Return On Equity Implications

Stock Recommendation
Mahshid Babakhani
Paolo Francisco
Mohammed Alaloul

Price/Earnings relationship
P0/E1= (1-b)/R-(ROE x b)
P0 = $64.94, E1= 4.54, b= 72.246%,
ROE= 25%, R= 20%

64.94/4.54 = (1-.72246)/.2 - (.25 x .72246)
14.317 = 14.30
Sell in order of employee stock option benefit
Full transcript