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market value of a 100-percent stock interest in Western National
Bank was $2.25 million on September 30, 1986, and March 31, 1987.
Respondent's experts applied a minority interest discount
of 20 percent and a lack of marketability discount of 15 percent
to value Kosman, Inc.'s stock interest in Western National Bank.
They concluded that the fair market value of Kosman, Inc.'s 10-
percent stock interest in Western National bank was $153,000 on
September 30, 1986, and March 31, 1987.
c. Analysis: Value of Kosman, Inc.’s Western National
Bank Stock
We believe that the approach used by the experts for both
parties is reasonable for the March 31, 1987, valuation.
However, we believe that respondent's experts overestimated the
value of Western National Bank stock. They used two income
methods, but placed undue emphasis on the higher capitalization
of earnings ($2,010,000) and disregarded the discounted cash-flow
method ($1,620,000). We believe their income method estimate
should be reduced slightly. None of the banks that they believed
were comparable performed like Western National Bank. The
average price-to-earnings ratio of the six banks that they
selected as comparables was 22.17 to 1. Western National Bank
was less profitable than five of the six comparables. They
assumed a price-to-earnings ratio of 20 to 1, but did not give
their basis for that assumption. We believe their market value
method estimate should be reduced slightly. We reduce their
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