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commonly used valuation guideline that should be applied in this
case. IPC determined that high interest rates, a sluggish
economy, and the high returns required by investors in small
companies were factors that would depress the value of FIC stock,
leading to a multiple in the order of 4.0 to 4.5, while the
modestly successful sales growth of FIC between 1979 and 1981
suggested a multiple of 5.0 to 5.5. IPC concluded that FIC
should be valued using an EBITDA multiple of 5.0 for both 1980
and 1981.
After determining total enterprise value, IPC made various
adjustments, such as subtracting the value of outstanding debt,
to determine total equity value, which was then converted to
equity value per share. Equity value per share was determined to
be $20,842 in February 1980 and $26,245 in August 1981. After
applying a 30-percent minority discount, a 35-percent
marketability discount, and a 10-percent key-person discount, or
a total of 59.05 percent in discounts, IPC determined a fair
market value per share of $8,535 in February 1980 and $10,747 in
August 1981; following these conclusions would result in an
overstatement of $10,806 for Royal and Maude's 1980 taxable
gifts, and zero taxable gifts for their transfers in 1981.
We found Messrs. Burns and Oliver to be qualified,
experienced, and credible expert witnesses. We agree with them
that valuing FIC using the income method would not be appropriate
inasmuch as the income method produces a value less than book
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