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criticism, Ms. Walker’s revised report combined an income-based
approach with the market-based approach of her original report.
Ms. Walker’s Income-Based Approach
In general, a market-based appraisal concentrates on a
company’s historical performance measures and, by reference to
guideline public company multiples, attempts to determine the
price at which the stock of a company with those performance
measures would trade. An income-based appraisal, by contrast, is
more forward looking; it attempts to predict, and then determine
the present value of, all future returns an investor could expect
to receive from an investment in the subject company. See Pratt
et al., Valuing Small Businesses and Professional Practices 236-
240 (3d ed. 1998).17
Because an income-based approach attempts to value directly
the future cash-flows that will be generated by an investment in
the subject company, it will produce accurate results only if an
accurate forecast of the company’s future earnings is available.
See id. at 257. It appears from the record that at the time of
17 As Ms. Walker’s reports and testimony made clear, no
bright line separates market-based appraisal methods from income-
based methods. For example, Ms. Walker’s market-based appraisal
used some performance measures derived from Demco’s forecasted
income for 1992. Also, both Ms. Walker and respondent’s expert
Mr. Schroeder determined the discount (or capitalization) rates
used in their income-based appraisals by reference to the actual
rates of return available on publicly traded investments. See
infra pp. 28-29 and pp. 35-36.
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