May T. Rakow - Page 14




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          conditions.  On the basis of IHC’s operating expenses (exclusive            
          of depreciation), which averaged 7.7 percent of revenues for the            
          last 5 years and 7.9 percent for the last 3 years, respondent’s             
          expert forecast operating expenses at 7.8 percent.  Depreciation            
          was forecast at 1.5 percent of revenues.  He assumed a 40-percent           
          tax rate for combined Federal and State income taxes.  For                  
          working capital, respondent’s expert selected 5 percent of                  
          revenue, the industry averages being 5 to 7 percent and IHC’s 5-            
          year average about 5 percent.  After a review of historical                 
          results and discussion with management, he projected capital                
          expenditures to equal depreciation in the long term, at 1.5                 
          percent of revenues.  Respondent’s expert developed a discount              
          rate using a weighted average cost of capital for a capital                 
          structure of 80 percent equity and 20 percent debt, a structure             
          intended to be reflective of the capital structures of companies            
          in SIC codes 1541 and 1542; this resulted in a 13-percent                   
          discount rate.  The end result of the discounted cash-flow                  
          approach was a value for IHC of $4,800,000, rounded.                        
               Respondent’s expert then averaged the results of the                   
          discounted cash-flow ($4,800,000) and the market comparable                 
          approach ($5,200,000) for a value of $5 million, or $788.65 per             
          share, on a majority basis.  The 30-percent control premium                 
          previously selected by respondent’s expert translates to a                  
          minority discount of 23 percent.  Accordingly, on a minority                





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Last modified: May 25, 2011