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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
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