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accredited senior appraiser with the American Society of
Appraisers. He has 22 years of valuation experience and has
taught courses and written several articles on business
valuation.
Mr. Hitchner also relied on a blend of income- and asset-
based approaches to value BCC. Like Mr. Fodor, Mr. Hitchner used
a capitalization of earnings model to derive his income-based
value. Mr. Hitchner projected BCC’s net free cashflow capacity
for the year immediately following the valuation date based on
BCC’s historical earnings over four different periods,11
adjusted for taxes, depreciation, capital investment, and
retained working capital. He increased the historical net after-
tax earnings by an estimated 5-percent growth rate.12
Mr. Hitchner then calculated a capitalization rate of 20
percent, from which he subtracted his estimated 5-percent growth
rate, to yield a net capitalization rate of 15 percent. By
11 Mr. Hitchner removed from earnings certain interest
income generated by the company’s “excess cash”; i.e., cash that
he considered in excess of operating, or working capital, needs.
He considered this “excess cash” to be a nonoperating asset to be
accounted for separately in his income-based approach. Insofar
as nonoperating assets were to be taken into account separately
under his approach, he removed the income from those assets,
including the interest generated by “excess cash”, from BCC’s
earnings.
12 Mr. Fodor did not adjust for any projected earnings
growth.
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