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offset by FNBW’s traditionally low net charge-off of loans, so he
made no adjustment.
Mr. Hitt also calculated a figure for FNBW’s income stream
in perpetuity, beginning after the initial 5-year period ended.
After the 5-year period, Mr. Hitt used a growth rate of 2.5,
rather than the 4 percent he used for the first 5 years. Also,
he assumed that, after the 5-year period, 84 percent of FNBW’s
income was to be paid as dividends, because the remaining 16
percent would be needed to maintain capital requirements.
Finally, he summed the following: (1) The amount that was
assumed paid out immediately as a dividend (which had present
value equal to itself, because it was a current distribution);
(2) the present values for each year of earnings during the
initial 5-year period; and (3) the present value of the
perpetuity figure. This resulted in a per-share value of
$117.22. Once again, he applied a lack of marketability discount
of 45 percent. Thus, his figure for capitalized future earnings
value was $64.47.
Weighting the Methods
Mr. Hitt felt that each of the three values deserved roughly
equal weight, although he believed that the capitalized future
earnings value was slightly more important. Therefore, he
weighted his three figures as follows: 30 percent for the P/E-
ratio value of $74.51, 30 percent for the P/Eqt-ratio value of
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