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return is generally required for venture capitalists or
is specific to an investment in SWI. Mr. Conklin
believed that a 35-percent rate of return was necessary
not only to justify the high degree of risk involved in
Dubin Clark's investment in SWI, but also to allow Dubin
Clark to make an overall profit despite the failure of
other ventures.
After calculating the present value of SWI's "debt-
free residual cash flow" for each year, Mr. Conklin
reduced the sum of these values by the book value of debt
outstanding in 1989 to arrive at the "fair market value
of equity, enterprise basis." Finally, Mr. Conklin
divided this figure by the total number of shares
outstanding to reach the price per share. Mr. Conklin
computed this value assuming 6 percent, 7 percent, and 8
percent "terminal growth rates". This produced per share
values of ($72.38), $100.14, and $285.43, respectively.
Mr. Conklin then reduced these figures to reflect a
"minority and marketability discount" of 50 percent,
which he based on the Mergerstat Review 1989. This
produced a range of values of ($36.19), $50.07, and
$142.72 per share. Based on this range, Mr. Conklin
concluded that the fair market value of SWI stock as of
June 30, 1989, was $55 per share.
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