Estate of Helen J. Smith, Deceased, Frederic L. Foill II and Cassandra F. Vallery, Co-Executors - Page 16




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                    Earnings-Based Value                                              
               Mr. Hitt’s approach in determining an earnings-based value             
          was basically the same as Mr. Egan’s.  To estimate earnings for             
          1993, Mr. Hitt started with a figure of earnings from operations            
          of $26,537, and assuming a 7-percent growth rate, he calculated             
          projected earnings for 1993 of $28,395.6  For his capitalization            
          rate, Mr. Hitt relied on the Capital Asset Pricing Model, under             
          which, according to him, the capitalization rate is calculated by           
          adding the risk-free investment rate as of the valuation date               
          with the product of the risk-free rate and an “equity beta”.  The           
          equity beta is a measurement of the risk of investing in a                  
          specific company in relation to the risk of investing in the                
          market overall.  A beta of 1 means that the company and the                 
          market are equally risky; a beta greater than, or less than, 1              
          means the specific company is riskier or less risky,                        
          respectively, than the market overall.  Mr. Hitt used the rate              
          for 10-year U.S. Government bonds, 7.2 percent according to him,            
          as the risk-free rate.  His figure for beta was determined from             
          large publicly traded agribusinesses.7  In addition, he added a             
          small-company risk premium of an unstated amount.  He computed a            


               6 In contrast, Mr. Egan used a 1993 earnings figure of                 
          $19,435.  Mr. Egan’s figure was based on averages of JFI’s                  
          earnings over 5 years, which fluctuated between a low of $9,243             
          in 1990 and a high of $28,145 in 1992.  Mr. Hitt used normalized            
          earnings from 1992 only in estimating his 1993 earnings figure.             
               7 He did not state what figure he used for beta.                       





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