- 9 -
outperform large stocks during the 1980's and 1990's. We give
little weight to Fuller’s analysis. Fuller appeared to
selectively use data that favored his conclusion. He did not
consistently use Ibbotson Associates data from the 1978-92
period; he relied on data from 1978-92 to support his theory that
there is no small-stock premium8 but used an equity risk premium
of 7.3 percent from the 1926-92 data (rather than the equity risk
premium of 10.9 percent from the 1978-92 period). If he had used
data consistently, he would have derived a small-stock premium of
5.2 percent and an equity risk premium of 7.3 percent using the
1926-92 data, rather than a small-stock premium of 2.8 percent
and an equity risk premium of 10.9 percent using the 1978-92
data.
We conclude that Johnson appropriately applied a small-stock
premium in valuing the Green Light stock.
2. Growth Rate
Johnson derived price/earnings multiples from the guideline
companies that he adjusted to account for differences between
their expected growth rates and that of Green Light. He selected
a 5-percent growth rate for Green Light and used growth rates for
the guideline companies ranging from 14.3 to 15.5 percent.
8 The Ibbotson Associates data for 1978-92 show a 2.8-
percent small-stock premium. See Ibbotson Associates (1993),
supra at 128.
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