Estate of Helen J. Smith, Deceased, Frederic L. Foill II and Cassandra F. Vallery, Co-Executors - Page 10




                                       - 10 -                                         
          percent (7.53 + 12.4 + 10), which he rounded to 30 percent.                 
          Finally, because he assumed that JFI would grow at a rate of 4              
          percent, he subtracted 4 percent to reflect the rate he believed            
          an investor would require, 26 percent.                                      
               Mr. Egan’s last step in computing an earnings-based value of           
          JFI was to divide the estimated future earnings by the                      
          capitalization rate:  $19,435 � .26 = $74,750, which he rounded             
          to $75,000.                                                                 
                    Weighting the Two Values                                          
               Mr. Egan believed that the greater part of the value of JFI            
          was due to the value of its assets rather than the value of its             
          earnings.  He believed that in the case of asset-based companies            
          with low earnings, such as JFI, investors place more emphasis on            
          underlying asset value.  This belief was confirmed by his                   
          examination of the 15 comparable companies, which reflected a               
          median earnings rate of return of zero.  Thus, he gave 70 percent           
          of the weight of the total value of JFI to the asset-based value            
          of $532,000 and 30 percent to the earnings-based value of                   
          $75,000.  This resulted in a value of $395,000, or $675 per                 
          share.                                                                      
                    Lack of Marketability Discount                                    
               Finally, Mr. Egan calculated a lack of marketability                   
          discount to reflect that fact that there was not a readily                  
          available market for decedent’s shares in JFI.  Mr. Egan’s                  






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