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he used in valuing JM. On the basis of the considerations and
findings, Mr. Stewart determined that the value of Specialty
under the DCF method was $358,000.
ii. Valuation of JM and Specialty Preferred Stock
Mr. Stewart determined the value of the preferred stocks of
JM and Specialty by analyzing data relating to dividends paid by
the same five companies he used in valuing JM and Specialty
because he believed they had similar preferred stock
characteristics (such as paid dividends, dividends cumulative,
and voting rights). Mr. Stewart concluded that an investor
seeking to buy JM preferred stock would require a 6-percent
dividend rate. This rate was higher than the 4.1-percent to 4.6-
percent rate he felt was required by investors in publicly traded
stocks because of a lack of access to a liquid market and
possible transfer restrictions. Because JM preferred stock had
an 8-percent dividend rate, Mr. Stewart determined the value to
be 8 percent divided by 6 percent, or $1.33 per share. On the
basis of the total number of preferred shares, 72,717, Mr.
Stewart determined that the aggregate preferred stock value of JM
was $97,000.
Mr. Stewart felt that an investor would require an 8-percent
dividend rate with respect to the Specialty preferred stock.
This determination was based on the facts that Specialty
preferred stock was noncumulative, nonvoting, carried a 5-percent
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