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dividend rate, had not paid dividends yet, did not have access to
a liquid market, and that the corporation had rights concerning
redemption and first refusal. Mr. Stewart divided the 5-percent
rate by 8 percent, the yield he believed an investor would
require, and arrived at a value of 62.5 percent of par value.
Specialty preferred stock had a par value of $1 per share; thus,
Mr. Stewart concluded that the value of Specialty preferred stock
was $0.625 per share. On the basis of the total number of
preferred shares, 100,000, Mr. Stewart determined that the
aggregate preferred stock value of Specialty was $62,500.
iii. Valuation of JM and Specialty Common Stock
To determine the value of JM common stock under the market
approach, Mr. Stewart took the value he assigned to JM, $1
million, and subtracted the value he assigned to the JM preferred
stock, $97,000. This resulted in an aggregate common stock value
of $903,000, before any discounts. Mr. Stewart then applied a
35-percent lack of marketability discount to this figure and
determined a value of $585,000 for the total common stock value
of JM.18 Mr. Stewart divided the total common stock value of
$585,000 by the number of outstanding common shares, 182,457, and
determined a value of $3.21 per share for JM common stock.
Mr. Stewart determined the value of JM common stock under
18Mr. Stewart did not apply a minority discount because, in
his opinion, the market approach already produces a per-share
value for a minority interest.
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