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Mr. Engstrom’s Expert Opinion
Mr. Engstrom concluded that the fair market value of a
minority interest in the common stock of HII, as of November 15,
1995, was $269,000 per share.24 He relied upon four valuation
methods, and he applied varying weights to the per share values
computed under those methods, to arrive at the fair market value
of $269,000 per share:
Valuation Method Per Share Value Weight Applied
Net asset value method $119,000 10%
Prior stock transaction method329,500 40
Stockholder agreement method 380,000 10
Guideline public company method 219,000 40
23(...continued)
Indeed, respondent points out that the adjustment for the alleged
understatement accounts for the biggest difference between the
values derived by Mr. Heebink in his market comparable analysis
and by Mr. Engstrom in his guideline companies analysis.
Respondent submits that without this adjustment, HII’s debt-free
earnings would have increased by approximately $1.5 million
($2.46 million x 39-percent income tax rate) to a total of $3.9
million ($2,434,000 + $1.5 million); after applying his current
earnings multiplier of 10.7 to the $1.5 million increase, total
enterprise value would have increased approximately $16 million
or $160,000 per share before discounts; and its per share value
would have increased to $223,000 after applying a 15-percent
minority discount and a 30-percent marketability discount.
24The report that Mr. Engstrom prepared was the second
report that Philip Schneider & Associates, Inc., prepared for
respondent. The first report arrived at a value of $253,000 per
share, the amount that respondent determined in the statutory
notices of deficiency issued to petitioners.
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