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