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measures and seven companies used by Ms. Walker.22 In addition,
the multiples chosen by Mr. Schroeder appeared to vary more from
one guideline company to another than the multiples chosen by Ms.
Walker.
Notwithstanding these distinctions, the major methodological
difference between the guideline company approaches of Mr.
Schroeder and Ms. Walker is that Mr. Schroeder treated the media
note as a separate, “nonoperating” asset. As a result, Mr.
Schroeder used a three-step procedure to derive his market-based
value for Demco. First, he developed four historical performance
measures for Demco that completely excluded the media division’s
operating results and the interest payable on the media note.
Second, he applied the guideline company multiples he developed
to those measures. Third, he added the media note’s $1,080,000
face amount to his guideline company value.
Having performed these steps, Mr. Schroeder concluded that
the value of Demco’s equity, before any discounts, was
22 The four measures used by Mr. Schroeder were: “adjusted
net income” for 1991 and for 1987 to 1991, and “revenues” for
1991 and for 1987 to 1991. Mr. Schroeder’s revenues were equal
to Demco’s net revenues as calculated by Ms. Walker. Mr.
Schroeder’s “adjusted net income” was equal to Demco’s net income
as calculated by Ms. Walker, less: (1) The 6 months of interest
on the media note included in Ms. Walker’s net income for 1991;
(2) a few nonrecurring items; and (3) a provision for income tax
at 34 percent.
The third guideline company used by Mr. Schroeder was Viking
Office Products, Inc.
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