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comparing the trading prices of restricted stock with freely
traded stock, and other studies comparing the trading prices of
stock before and after initial public offerings, Ms. Walker
concluded that a 40-percent lack of marketability discount should
be applied to her guideline public company value. In addition,
on the basis of other studies comparing prices of voting and
nonvoting stock, Ms. Walker concluded that a further 5-percent
discount should be applied to reflect the nonvoting status of the
stock given by Mr. Wall.
After having applied these discounts, under Ms. Walker’s
historical performance measures/guideline public company approach
the fair market value of the Demco nonvoting common stock as of
the date of the gifts was $212.20 per share.14
Forecasted-Earnings Approach
Ms. Walker also applied the guideline public company
approach to Demco’s projected earnings for 1992, the year of the
gifts. Using projections made by Demco’s management, Ms. Walker
calculated three forecasted earnings measures for Demco: 1992
EBIT, EBDIT, and after tax earnings. Applying multiples derived
from two of her guideline companies to these forecasted earnings
14 The calculation is (total equity value) times (1 minus
lack of marketability discount) times (1 minus nonvoting
discount) divided by (number of shares outstanding), or
($4,914,000) times (.6) times (.95) divided by (13,200) equals
($212.20 per share).
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