Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 111

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          the years in his projection period to arrive at net after-tax               
          cashflows.142                                                               
                    iv.  Valuations                                                   
               Mr. Medress determined the present value of future cashflows           
          using a discount rate of 11.8 percent calculated on an industry             
          basis with the buildup method, adjusting for inflation, company             
          size, and the fact that a film library of completed film titles             
          does not have the same business risk as the full range of                   
          business activities of companies engaged in film production and             
          distribution.                                                               
               Under scenario 1, Mr. Medress concluded that the fair market           
          value of the 65 EBD film titles, as of December 11, 1996, was               
          $1.6 million (rounded).  Under scenario 2, Mr. Medress determined           
          that the fair market value of the EBD film titles, as of December           
          11, 1996, was $1.5 million (rounded).                                       
                    v.  Market Approach                                               
               Mr. Medress did not use a market approach in valuing the EBD           
          film library.  Nonetheless, as a reality check on his                       
          conclusions, he compared the average value per title from his               
          analysis ($24,219) with the average price per title from the sale           
          of the LIVE Entertainment film library ($68,000), which occurred            
          approximately 4 months after December 11, 1996.  Mr. Medress                

               142 Mr. Medress amortized the projected purchase price for             
          the EBD film titles on a pro rata basis according to the                    
          projected gross receipts from the film titles.                              





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