Nathan P. and Geraldine V. Morton - Page 28

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             previous year.  He then added depreciation and deducted                  
             capital expenditures to reach a final "debt-free residual                
             cash flow" for each year.                                                
                  Next, Mr. Conklin reduced "debt-free residual cash                  
             flow" each year to present value, applying a discount                    
             rate of 35 percent.  Mr. Conklin chose this discount rate                
             after examining the risk inherent in SWI's financial                     
             structure and the risk associated with SWI's general                     
             business enterprise.  According to Mr. Conklin, the                      
             discount rate reflects the rate of return an investor                    
             would require before devoting money to a particular                      
             enterprise, considering its particular economic, market,                 
             and industry risks.  In this regard, Mr. Conklin examined                
             the capital structure of the computer retailing industry,                
             as well as the economic, market, and industry risk on the                
             valuation date.  He believed that SWI presented a                        
             particularly risky investment due to difficulties in                     
             obtaining financing for expansion and a high degree of                   
             risk in the computer and related markets.  Additionally,                 
             Mr. Conklin believed that "The [discount] rates for                      
             venture capital funds averaged between 30 to 60 percent                  
             or more due to the business risk associated with SWI's                   
             position."  He did not cite any authority for this                       
             conclusion either in his expert report or in his                         
             testimony at trial, nor did he state whether this rate of                




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