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expedient logic that the exclusive use of capitalized earnings
and the income method in the valuation would result in treating
all interests in the entity equally. In other words, he
concluded that minority interests would receive the same
percentage return on their investment as a majority interest.
Mr. Burns did, however, employ a 25-percent marketability
discount. To compute the discounted value, Mr. Burns began with
his $30,740,869 income method valuation of Godfrey and calculated
that a 19.99-percent interest resulted in an undiscounted value
of $6,145,100. After applying a 25-percent marketability
discount of $1,536,275, he arrived at his discounted fair market
value of $4,608,825.
Mr. Burns relied on two different studies that surveyed
restricted stock transactions of otherwise publicly traded stock.
Based on those studies and his analysis, Mr. Burns concluded that
a 25-percent marketability discount was appropriate for the
19.99-percent interest in Godfrey. One study, which was
conducted by FAIR MARKET VALUE Opinions, Inc., surveyed
restricted stock transactions from 1979 through 1992 and resulted
in a mean discount of 23 percent. A second study, conducted by
Management Planning, Inc. (MPI), with respect to restricted stock
transactions occurring from 1980 through 1995, resulted in an
average discount of 19.4 percent for companies with revenues
ranging from $50 million to $100 million. In the MPI study, the
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