- 20 -
per year. The second assumed compensation of $2.5 million, and the
third assumed compensation of $12 million in 1990 and $17 million
thereafter.
Another significant difference in the experts’ analyses was
the discount rates used by the experts in their discounted cashflow
analyses. Messrs. Hanan and Weiksner determined that JPMS’s
weighted average cost of capital (WACC) was 15 percent. Mr. Hanan
used the 15 percent WACC as his discount rate. Mr. Weiksner used
discount rates between 17 and 21 percent to take into account
JPMS’s smaller size. Mr. McGraw determined JPMS’s WACC at 24.7
percent and used a discount rate of 25 percent. Mr. McGraw
attributed 3 percent to JPMS’s smaller size and 6 percent to
reflect individual risk associated with JPMS. The individual risk
specified by Mr. McGraw was the limited number of prospective
purchasers for the stock due to the size of the investment, the
minority interest status of the block of stock, and the control
exercised by Mr. DeJoria.
The enterprise values (in millions of dollars) determined by
the experts under their comparable companies and discounted
cashflow analyses are shown in the following table:
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