- 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
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