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He took the average of these four numbers, $15,850,750, and
rounded to $16 million as the value of FNBW before application of
any discounts.
Discount Based on General Factors
Mr. Egan applied a 30-percent discount to his figure of $16
million because he believed that FNBW was in general less
valuable than the comparable companies from which he derived the
ratios. His report discussed both “qualitative” and
“quantitative” differences between FNBW and the comparable
companies in his list.
Mr. Egan relied on two “qualitative” factors: FNBW’s size
and FNBW’s small geographic market. With respect to FNBW’s size,
Mr. Egan stated that FNBW had total assets of $104 million, while
the comparable companies had assets of $370 million to $625
million. In Mr. Egan’s view, smallness gives rise to certain
disadvantages: The small company is less able to weather
financial adversity, to attract top-quality management, to
protect against emergencies, to finance growth, to compete
aggressively, or to maintain depth of management. With respect
to geographic area, the same types of disadvantages apply: The
financial health of FNBW was tied to the economy of Pike County
alone, FNBW provided fewer services, and FNBW operated fewer
branches.
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