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adjust the average return by a factor dependent on the difference
between historical book value and the fair market value of the
Bank as of December 31, 1992. Mr. Mercer also indicates in his
book that the required holding period return should be adjusted
for shareholder-specific risks related to the nonmarketability
features of the investment, such as:
(1) Indeterminacy of the holding period;
(2) likelihood of interim cash-flows;
(3) prospects for liquidity;
(4) uncertainty of favorable exit;
(5) general unattractiveness of the investment; and
(6) restrictive agreements.
See Mercer, supra at 250-251.
Mr. Wahlgren has failed to make any such analysis. As
applied by Mr. Wahlgren, the economic model at best adjusts the
fair market value of the Company for the fact that an investor
will not receive the required higher rate of return (demanded for
investments in small capitalized companies) for a period of 10
years. Mr. Wahlgren, however, has not added any increments to
the holding period return for the risk elements associated with
the specific circumstances of this situation.
We find Mr. Wahlgren’s application of the QMDM model in the
instant cases not to be helpful in our determination of the
marketability discount. We have grave doubts about the
reliability of the QMDM model to produce reasonable discounts,
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