- 11 -
investment (along with any dividends distributed) does not meet
the shareholder’s required rate of return for a specified period.
See id. at 212-215. Mr. Mercer advises that the required rate of
return should reflect the “investor’s required rate of return, or
the opportunity cost of investing in the subject company versus
another, similar investment that has immediate market liquidity.”
Id. at 214.
In the instant cases, Mr. Wahlgren applied a 9.12-percent
growth rate, a zero-percent distribution yield, a holding period
of 10 years, and a required holding period return of 21.47
percent. Mr. Wahlgren determined that the Company’s growth rate
depended on the increasing value of the Bank, the Company’s
primary asset. Mr. Wahlgren, in turn, computed the growth rate
for the value of the Bank using the average return on equity
between 1988 and 1992 (13.54 percent) of the Bank. Because the
average return on equity was based on the historical book values
of the Bank, Mr. Wahlgren reduced the average return by dividing
it by a factor of 1.4853 to account for the difference between
the estimated fair market value and historical book value of the
Bank as of December 31, 1992.6
With regard to the dividend yield, Mr. Wahlgren concluded
that the Company did not have a history of making distributions
6 Mr. Wahlgren rounded the 1.4853 factor to 1.49 when
discussing the ratio between the fair market value of the Bank to
the historical book value of the stockholders’ equity in the
Bank. See supra p. 9.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011