Estate of Ross H. Freeman, Deceased, Dennis Hersey, Executor - Page 9

                                        - 9 -                                         
          it an amount to reflect the future value of the corporation at              
          the end of 5 years.  He then divided that result by the number of           
          shares that were outstanding on the appropriate valuation date to           
          derive a value for each such share.  The value he so derived was            
          $5.65.  Because shares of the corporation were not readily                  
          marketable on that date, he then applied a liquidity discount to            
          yield a final estimate of value.  Although he recognized that a             
          35-percent liquidity discount had come to be regarded as an                 
          average discount, he applied a discount of only 10 percent.  He             
          did so because he thought that an initial public offering of                
          shares of the corporation was likely, based on (1) the ownership            
          of a substantial portion of the corporation by venture                      
          capitalists, (2) the recent history of public offerings by                  
          similar companies, and (3) his assumption that decedent would               
          have been aware of (and would have communicated to any potential            
          buyer) steps towards a public offering that already had been                
          taken by the corporation.  Spiro thus computed a per-share fair             
          market value for the shares of $5.09 using the income approach.             
               Under the market approach, Spiro first made a list of public           
          companies that he considered comparable to the corporation.  He             
          then identified those on the list that resembled the corporation            
          sufficiently closely in terms of both earnings per share and                
          growth in earnings per share.  For those three companies, he used           
          certain market value indicators (e.g., the ratio of price to                
          recent earnings) to derive a range of market values for shares of           




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011