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liquidation value. Respondent also argues that, in the event we
consider an earnings-based value, the correct method for
calculating it is to capitalize net cash-flow rather than net
income.
We believe that Mr. Frazier’s approach puts too much
emphasis on the likelihood, and assumed effect, of liquidation
and in addition that Mr. Frazier’s approach incorrectly
capitalized net income. On the other hand, we believe that
respondent puts too much emphasis on the fair market value of
assets. We find that the value of Dunn Equipment is best
represented by a combination of an earnings-based value using
capitalization of net cash-flow and an asset-based value using
fair market value of assets, with an appropriate discount for
lack of marketability and lack of super-majority control.
Respondent and his expert, Ms. Eggleston, argue that because
of the large disparity between net asset value and earnings
value, earnings value should be disregarded. They further argue
that net asset value represents a minimum value for Dunn
Equipment. We reject both of these positions. Respondent’s
approach would require us to disregard completely the significant
operational aspects of the company in determining fair market
value. But Dunn Equipment was a viable operating company as of
the valuation date and earned a significant part of its revenues
from selling services as well as renting equipment.
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Last modified: May 25, 2011