Johann T. and Johanna Hess - Page 45

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               Discounted Cashflow Method                                             
               Mr. Engstrom considered the discounted cashflow method and             
          determined that the fair market value of common stock in HII was            
          $25,566,478, or $256,000 per share as of November 15, 1995.  He             
          concluded that this amount supported his conclusions with respect           
          to his overall valuation analysis.  Mr. Engstrom gave no weight             
          to that amount because he concluded that relatively small changes           
          in certain assumptions which were used resulted in large changes            
          to the indicated value of the company.                                      
               We cannot agree that this provides a basis for wholly                  
          rejecting a discounted cashflow analysis.  Indeed, as Mr. Heebink           
          testified, this same problem is apparent in other valuation                 
          methods.  It is axiomatic that even small changes in certain                
          assumptions in a valuation analysis can result in dramatic                  
          changes in the value derived.  Of course, in the case of certain            
          companies, the distortions in value may be more pronounced.                 
          However, this does not preclude any reliance on a discounted                
          cashflow analysis, and we would in those circumstances apply less           
          weight to the value derived thereunder.41                                   


               41Respondent argues on brief that “Mr. Engstrom’s conclusion           
          that the DCF method did not provide reliable information is                 
          completely correct * * *.  Any conclusion reached using it should           
          be disregarded.”  Respondent discussed Mr. Engstrom’s discounted            
          cashflow method in his reply brief; however, he considers any               
          errors in that method “irrelevant”, since Mr. Engstrom did not              
          rely on the discounted cashflow method.  It is clear to us that             
          respondent places no reliance upon Mr. Engstrom’s discounted                
                                                             (continued...)           




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