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exceed 43 percent. Spiro thought that the company’s growth rate
was “meteoric” when compared to a 25-percent growth rate in 1989
for the semiconductor industry. Spiro concluded that the
corporation’s growth rate was higher than any publicly traded
comparable company that he examined other than one.
For the first 6 months of 1990, operating income was
$3,606,000, which, if annualized, would be $7,212,000. Spiro
concluded, however, that, if sales for the first 6 months of 1990
continued to grow, and expenses continued to decline as a
percentage of sales, then operating income would be even greater.
The corporation’s actual operating income for 1990 was
$8,846,000.
Spiro’s analysis of the corporation’s financial position
also included an examination of the corporation’s gross profit
margins, research and development expenses, marketing, general
and administrative expenses, interest income and expenses, tax
position, profitability, assets, liabilities, and book equity
value.
Spiro determined the value of the shares using both an
income and a market approach.
Under the income approach, Spiro projected the cash-flow
available for distribution for 5 years. He made assumptions
about future levels of sales, expenses, and taxes to estimate
annual available cash-flow. After making certain adjustments, he
calculated the present value of that income stream and added to
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