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rate. Goldman Sachs concluded that as of September 17, 1987, the
class A preferred stock had a fair market value in the range of
$152 million to $168 million, and that the class B preferred
stock had a fair market value in the range of $97 million to $108
million.
Procedures Used by Goldman Sachs To Value the Common Stock
Warrants
To value the Common Stock Warrants, Goldman Sachs first
projected the value that the HealthTrust Common Stock would have
after 10 years. For that purpose, Goldman Sachs applied
multiples in the range of 6 to 9 to the projected income of
HealthTrust in its 10th year of operation. Next, Goldman Sachs
reduced those computed values by the projected amount of debt and
preferred stock, net of estimated available cash, that
HealthTrust would have in its tenth year of operation. Goldman
Sachs then discounted by 30 to 40 percent the estimated value of
Common Stock in that tenth year to estimate the value of the
Common Stock on a fully diluted per-share basis as of September
17, 1987, to be in the range of $1.25 to $3. Lastly, Goldman
Sachs used the Black-Scholes option pricing model14 to estimate
the value of the Common Stock Warrants. Goldman Sachs concluded
14 Mr. Harris stated that the Black-Scholes model was the most
widely accepted option pricing model and that for purposes of
valuing the Common Stock Warrants the model took into account
factors such as the value of the Common Stock, the Common Stock
Warrant exercise price, the terms of the Common Stock Warrants,
an assumed volatility in the price of the Common Stock, and the
level of market interest rates.
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