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Respondent’s expert then calculated a value for IHC using these
ratios, weighting each of the four market comparison methods
equally as shown:
Minority Weighted
Base Multiple Value Weight Value
Price/revenue $24,500,000 0.30 $7,350,000 0.25 $1,837,500
Price/earnings 300,000 20.00 6,000,000 0.25 1,500,000
Price/EBIT 500,000 10.00 5,000,000 0.25 1,250,000
Price/book 3,100,000 1.00 3,100,000 0.25 775,000
Unadjusted value 5,362,500
Because the market approach, based on individual shares, reflects
a marketable minority value, respondent’s expert applied a
control premium of 30 percent and then a marketability discount
of 25 percent, for a result of $5,228,438, which he rounded to
$5,200,000. Respondent’s expert selected the 30-percent control
premium on the basis of the 1991 average premiums of 35 percent
for all companies, 28 percent for contractors and engineering
services, and 45 percent for construction companies.
Respondent’s expert also valued IHC using the discounted
cash-flow approach. This approach is based upon estimates of
future cash-flow discounted for the time value of money and
relative investment risks. Relying on IHC’s 5-year and 3-year
averages and industry trends and forecasts, respondent’s expert
used the following growth rates: Years 1 through 5, 5 percent;
years 6 through 10, 4 percent; post-year 10, 3 percent. He
projected direct costs to be 88 percent of revenues based on
historical results, industry averages, and anticipated economic
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