- 10 -
record. Ultimately, petitioner’s expert concluded that a pretax
P/E ratio of 4 is appropriate in this case, as it implies a
pretax investment return in the absence of growth of nearly 25
percent, a return allegedly consistent with FMI’s experience.
Petitioner’s expert then applied this P/E ratio of 4 to
various average and weighted average historic pretax earnings, to
current pretax earnings, and to projected 1993 pretax earnings as
estimated by IHC management. As shown below, the results of the
earnings approach were lower than the value of the operation
derived through the asset approach.
Method Valuation
Book value (9-30-92) $3,058,101
Adjusted book value (9-30-92) 3,323,643
Capitalization of 5-yr. average adjusted earnings 1,820,712
Capitalization of 5-yr. weighted avg. adj. earnings 2,128,296
Capitalization of 3-yr. average adjusted earnings 2,408,588
Capitalization of 3-yr. weighted avg. adj. earnings 2,355,660
Capitalization of 1993 projected earnings 2,000,000
It was petitioner’s expert’s opinion that the fair market value
of IHC as an enterprise was $2,750,000. When added to the
nonoperating assets of $339,238, this resulted in a total value
for IHC on a majority basis of $3,089,238.
Petitioner’s expert determined a minority discount by
consulting market data. Using the median premiums paid for
control for each year from 1980 to 1992 according to Mergerstat
Review, petitioner’s expert calculated the corresponding implied
minority interest discounts. These discounts ranged in value
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011