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Winn-Dixie's NYSE price on the valuation date in determining the
fair market value of ADDI&C's Winn-Dixie stock and its net asset
value on that date. He arrived at that percentage discount based
on the Black-Scholes options pricing model (Black-Scholes model),
which is used to calculate the cost of a call or put option. Mr.
Howard used the Black-Scholes model to value a put option, which
gives the holder the right to sell a specified asset at a
specified price on (or before) a specified date. Mr. Howard
explained in his rebuttal report that the cost of a put option can
be used to determine the cost of "locking-in" the price of a stock
when the future price of that stock cannot be known with
certainty. Mr. Howard determined that the Black-Scholes model was
a good measure of the discount associated with ADDI&C's exposure
to the market risk that the NYSE price of its Winn-Dixie stock
would have fallen during the 5-to-6 month period that would have
been required to sell that stock under the dribble-out method.
Mr. Howard explained in his rebuttal report that the Black-
Scholes model takes into account the following variables in
arriving at the value of an option: (1) Current stock price per
share, (2) exercise price per share, (3) time to maturity, (4)
risk-free interest rate, (5) volatility, and (6) continuous
dividend yield. Using the Black-Scholes model, Mr. Howard
calculated that the cost of a 3-month put option on Winn-Dixie
stock as of the valuation date would be $3.37, or 4.9 percent of
Winn-Dixie's NYSE price on that date.
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