-9-
Method Resulting Value
Transaction value $1,500,000
Net asset value 14,124,000
Discounted future earnings:
10-percent earnings growth 11,364,000
20-percent earnings growth 14,224,000
Guideline company regional peer group:
Capitalized earnings 8,306,000
Capitalized book value 17,174,000
Guideline company high/equity assets group:
Capitalized earnings 8,543,000
Capitalized book value 16,860,000
The Mercer report gave no weight to the transaction value
method, the net asset value method, or the discounted future
earnings method, and ascertained the value of the marketable
minority interest to be $12,721,000 by averaging the other four
amounts (8,306,000 + 17,174,000 + 8,543,000 + 16,860,000)/4 =
12,720,750) and rounding the resulting average to the nearest
thousand. The Mercer report as a second step in the valuation
process then ascertained the applicable fair market value of
decedent’s 11.6-percent interest by applying a 43-percent lack of
marketability discount to the marketable minority interest value
of $12,721,000 (12,721,000 x 43% = 5,470,030) and multiplying the
resulting rounded number of $7,251,000 (12,721,000 - 5,470,030 =
7,250,970) by 11.6 percent. The Mercer report derived the
43-percent lack of marketability discount by applying a
quantitative marketability discount model (QMDM) adopted and
advocated by Mercer. The Mercer report noted that the estate had
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Last modified: May 25, 2011