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 companys 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 companys technological advantage will last only for the next five years. After that period, the companys 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?

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 hold- ings 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 $1.10, 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. ROE R Table 1: Siddle Inc. Competitors EPS DPS Stock Price Arctic Cooling Inc $1.30 $0.15 $25.34 National Heating & Cooling $1.95 $0.22 $29.85 Expert HVAC Corp. -$0.37 $0.12 $22.13 Industry Average $0.96 $0.16 $25.77 9% 11% 10% 10% 10.0% 13.0% 12.0% 11.67%