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companies had an overall average lack of marketability discount
of 30.8 percent. Mr. Schroeder points out, however, that this
particular group contained only two transactions involving
companies with revenues comparable to RBI’s relatively small
revenues ($12,653,000 for the 12 months preceding decedent’s
death).15 According to Mr. Schroeder, those two transactions had
an overall average lack of marketability discount of 43 percent.
The Management Planning, Inc. study indicates a clear correlation
between the size of a company’s gross income and the size of the
lack of marketability discount. See Pratt, et al., Valuing a
Business: The Analysis and Appraisal of Closely Held Companies
401 (4th ed. 2000) (“There was clear size effect in the
Management Planning Study, with smaller companies tending to have
larger discounts”). Mr. Herber admits as much on page 75 of his
report: “In other words, restricted shares of companies with
higher gross income tended to sell for lower discounts than the
restricted shares of companies with lower gross income.” Because
RBI had gross income at the lower end of the range indicated in
the Management Planning Study, we might expect the appropriate
discount for RBI to be higher than the overall average lack of
marketability discount of 30.8 percent indicated for the relevant
grouping of companies.
15 Mr. Herber was unfamiliar with the two transactions that
Mr. Schroeder identified. He could only testify that “I can look
that up. I would like to see that.”
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