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the 1990-94 earnings were lower than normal, Mr. Burns used a
3-year spread of 1995-97, with 1997 more heavily weighted. In
this way, Mr. Burns arrived at normalized 1995-97 earnings of
$2,551,487 per year.
In computing a capitalization rate, Mr. Burns, in a manner
similar to Mr. Dorman’s, started with a 6.56-percent riskless
rate on U.S. Treasury bonds and added a 7.50-percent premium for
equity and a 5.78-percent premium for small stock. Finally, he
made an industry-specific reduction of 5.20 percent to arrive at
a total of 14.64 percent. From the 14.64 percent, Mr. Burns
deducted 4.63 percent to reflect Godfrey’s growth, resulting in a
10.01-percent capitalization rate. We note that Mr. Dorman and
Mr. Burns started with comparable rates for U.S. Treasury bonds
and made, for the most part, similar categorical adjustments, as
follows:
Item Mr. Dorman Mr. Burns
Percent (%) Percent (%)
Treasury bond rate 6.14 6.56
Premium for equity 7.90 7.50
Premium for small stock 5.78 5.78
Company/industry 3.00 (5.20)
Total 22.82 14.64
Less: Growth (5.50) (4.63)
Capitalization rate 117.50 10.01
1 Rounded to the nearest 0.5.
Accordingly, the major difference between the experts’
approaches resides in the “Company/industry” adjustment. Mr.
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