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approach because the DCF method required a greater number of
estimates. Accordingly, Button concluded that Schlegel UK had a
fair market value of $20 million as of July 1, 1989.
Gooch
Gooch also valued the Schlegel UK automotive and building
products groups separately, taking into consideration the
differences between the industries. His valuation, however,
departed from Button’s approach in that Gooch valued Schlegel UK
on both a synergistic and stand-alone basis.
Applying the DCF method, Gooch calculated a WACC using an
industry-wide beta estimate for the automotive and building
products operations of Schlegel UK to calculate cost-of-equity
capital. Gooch was of the opinion that the beta of individual
companies is often unreliable due to speculation, low trading
volume, or other factors affecting stock price besides earnings.
Based on his industrywide research, he concluded that the
appropriate beta for companies operating in the automotive sector
was in the range of 1.05 to 1.45 with an average of 1.2 and that
the appropriate beta for companies in the building products
sector ranged from 1.1 to 1.8 with an average of 1.3. He
ultimately used 1.3 and 1.5, respectively.
Gooch applied a small company risk premium of 5 percent to
both the automotive and building products divisions when
calculating the cost-of-equity capital. Gooch also perceived
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