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value of the cash-flow from the stock sales and dividends using
9.5 percent as a discount factor.
Using this piecemeal sales method, Spiro concluded that the
"implied price per share" was $308. This amount represents an
illiquid minority value and requires no further adjustment.
To value the shares by the income method, Spiro capitalized
Savings' 1992 pro forma cash-flow. To make this determination,
Spiro made certain assumptions regarding Savings' 1992 net
interest income, provision for loan losses, other operating
income and expenses, income taxes, and additions to equity
capital. Spiro developed the discount rate he used to calculate
the present value of the estimated cash-flow by reducing the rate
of return that he thought an equity investor in Savings would
require by 7 percent, his estimate of Savings' long-term growth
rate.
Using this method, Spiro concluded that the minority value
of the stock was $331 per share, before considering a liquidity
discount. After applying the 20-percent liquidity discount,
Spiro concluded that the fair market value of the stock was $266
per share.
To reconcile the results of the different methods, Spiro
calculated the weighted average of the different values. Spiro
assigned the results of the piecemeal sales method 40 percent of
the total, the market method 35 percent, and the income method 25
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