-190-
termed an “appropriate” rate of 10 percent of gross sales.141
Mr. Medress did not project any conversion costs.
iii. Net Cashflows
After deducting manufacturing, packaging, shipping, and
marketing costs, Mr. Medress derived net receipts for the EBD
film library from its projected distributions in the rental and
sell-through markets for each of the years in the 10-year
projection period. Mr. Medress combined the net receipts for the
rental and sell-through distributions and subtracted his
projected overhead from these yearly figures.
Mr. Medress calculated a terminal value for the EBD film
library based on projected cashflows for 2006, assuming that
units shipped would continue to decline beyond 2006 at an annual
rate of 2.5 percent. Mr. Medress then computed the total
cashflows for each year in his projection period, including the
terminal value of the EBD film library in his 2006 projections.
Mr. Medress applied a 44.5-percent (combined Federal and New York
State) tax rate and added an amortization tax benefit for each of
141 Mr. Medress projected overhead for the EBD film library
at a rate that he regarded as “typical” of a small distribution
company. He assumed that the EBD film library was, or would be,
part of a business that distributed other films, resulting in
lower overhead costs.
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