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interest expense, income taxes, administration costs, and
amortization for financing commitments. After estimating Powhatan
Associates’ net income for both valuation dates, in order to arrive
at Powhatan Associates’ estimated annual cash-flow stream, Mr.
Gampel considered noncash charges, capital expenditures, changes in
net working capital, and debt.
Next, Mr. Gampel developed a discount rate through the
summation method that combined:
a risk-free rate of return of 8.93%
a market risk premium of 3.97
a small stock risk premium of 9.02
a company specific risk premium of 10.0
Total 31.92
Rounded 32.0
The 32-percent discount rate was then applied to Powhatan
Associates’ estimated cash-flow stream for both valuation dates.
On the basis of his discounted cash-flow analysis, Mr. Gampel
opined that (1) the fair market value of Powhatan Associates was
approximately $11.7 million as of February 16, 1989, and $14
million as of February 15, 1990; and (2) WVI’s one-third interest
in Powhatan Associates (before discounts to reflect lack of control
and lack of marketability) was approximately $3.9 million as of
February 16, 1989, and $4.7 million as of February 15, 1990.
Mr. Gampel reduced the value of WVI’s one-third interest in
Powhatan Associates by two discounts: A minority interest (or lack
of control) discount and a lack of marketability discount. These
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