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capacity, including an allowance for taxes and a downward
adjustment to earning capacity of $200,000 to account for annual
contributions to the ESOP. He also adjusted for depreciation,
capital investment, and retained working capital. He concluded
that BCC would have $234,060 in net free cashflow capacity.
Mr. Fodor then determined a capitalization rate; i.e., the
rate an investor would require to invest in BCC taking into
account the riskiness of the investment, and an expected growth
rate. Mr. Fodor calculated a capitalization rate of 32.94
percent. He chose 4 percent as his expected growth rate. Mr.
Fodor subtracted the expected growth rate from the capitalization
rate to yield a net capitalization rate, which he then divided
into the net free cashflow capacity to calculate BCC’s
capitalized earnings. He determined capitalized earnings of
$809,896.
Mr. Fodor added approximately $5.6 million to capitalized
earnings, consisting of BCC’s net working capital (current assets
less current liabilities) as of the valuation date ($3,187,372)
as well as an amount equal to the difference between BCC’s
assets’ book value and fair market value (as reflected in BCC’s
internal “value in use” analyses) ($2,555,895). He then
subtracted $750,000, which he claimed reflected the obligation to
repurchase BCC shares held by ESOP participants upon retirement
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