Sales2

20 7.95E 10

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

T A B L E 10-4B

Calculation of Component #1”Delay to Sale”$125,000 Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 2.778E 11 0.0%

7 Value of block-post-discount [2] 4.26E 09 $125,000 0.0%

8 FMV-marketable minority 100% interest 5.97E 10 $125,000 0.0%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 0.3330 4.5%

12 Total Discount [4] 0.0%

14 Value of block-pre-discount [5] $125,000

16 Selling price $125,000

17 Adjusted net income $ 26,352

18 Assumed pre-tax margin 5%

19 Sales $527,049

Sales2

20 2.78E 11

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

CHAPTER 10 Empirical Testing of Abrams™ Valuation Theory 371

T A B L E 10-4C

Calculation of Component #1”Delay to Sale”$175,000 Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 4.972E 11 0.0%

7 Value of block-post-discount [2] 4.26E 09 $175,000 0.0%

8 FMV-marketable minority 100% interest 5.97E 10 $175,000 0.0%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 0.3330 4.5%

12 Total Discount [4] 0.0%

14 Value of block-pre-discount [5] $175,000

16 Selling price $175,000

17 Adjusted net income $ 35,255

18 Assumed pre-tax margin 5%

19 Sales $705,109

Sales2

20 4.97E 11

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

T A B L E 10-4D

Calculation of Component #1”Delay to Sale”$225,000 Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 6.685E 11 0.0%

7 Value of block-post-discount [2] 4.26E 09 $225,000 0.1%

8 FMV-marketable minority 100% interest 5.97E 10 $225,000 0.0%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 0.3330 4.5%

12 Total Discount [4] 0.0%

14 Value of block-pre-discount [5] $225,000

16 Selling price $225,000

17 Adjusted net income $ 40,882

18 Assumed pre-tax margin 5%

19 Sales $817,647

Sales2

20 6.69E 11

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

PART 4 Putting It All Together

372

T A B L E 10-4E

Calculation of Component #1”Delay to Sale”$375,000 Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 1.955E 12 0.0%

7 Value of block-post-discount [2] 4.26E 09 $368,041 0.2%

8 FMV-marketable minority 100% interest 5.97E 10 $375,000 0.0%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 0.5000 6.7%

12 Total Discount [4] 1.9%

14 Value of block-pre-discount [5] $375,000

16 Selling price $375,000

17 Adjusted net income $ 69,913

18 Assumed pre-tax margin 5%

19 Sales $1,398,256

Sales2

20 1.96E 12

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

T A B L E 10-4F

Calculation of Component #1”Delay to Sale”$750,000 Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 1.955E 12 0.0%

7 Value of block-post-discount [2] 4.26E 09 $686,724 0.3%

8 FMV-marketable minority 100% interest 5.97E 10 $750,000 0.0%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 1.0000 13.7%

12 Total Discount [4] 8.4%

14 Value of block-pre-discount [5] $ 750,000

16 Selling price $ 750,000

17 Adjusted net income $ 69,913

18 Assumed pre-tax margin 5%

19 Sales $1,398,256

Sales2

20 1.96E 12

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

CHAPTER 10 Empirical Testing of Abrams™ Valuation Theory 373

T A B L E 10-4G

Calculation of Component #1”Delay to Sale”$10 Million Firm [1]

A B C D

4 Coef¬cients Co. Data Discount

5 Intercept 0.1342 NA 13.4%

Revenues2 [2]

6 5.33E 18 2.560E 14 0.1%

7 Value of block-post-discount [2] 4.26E 09 $ 9,489,650 4.0%

8 FMV-marketable minority 100% interest 5.97E 10 $10,000,000 0.6%

9 Earnings stability (assumed) 0.1376 0.4200 5.8%

10 Revenue stability (assumed) 0.1789 0.6900 12.3%

11 Average years to sell 0.1339 1.0000 13.4%

12 Total Discount [4] 5.1%

14 Value of block-pre-discount [5] $10,000,000

16 Selling price $10,000,000

17 Divide by P / E multiple assumed at $ 800,000

12.5 net inc

18 Assumed pre-tax margin 5%

19 Sales $16,000,000

Sales2

20 2.56E 14

[1] Based on Abrams regression of Management Planning, Inc. data-Regression #2, Table 7-10

[2] Equal to Pre-Discount Shares Sold in dollars * (1-Discount). B7 equals B14 only when the discount 0%.

[3] Earnings and Revenue stability are assumed at the averages from Table 7-5, G60 and H60, respectively, for all FMVs. In the

Management Planning data, a correlation analysis revealed that ¬rm size and the stability measures are uncorrelated. Therefore, we

assume the same levels for all FMVs.

[4] Total Discount max(discount, 0), because Disc 0 indicates the model is outside of its range of reasonability.

[5] In our regression of the Management Planning, Inc. data, this was a marketable minority interest value. This is an illiquid control

value and is higher by 12% to 25% than the marketable minority value. The regression coef¬cient relating to market capitalization in

B8 is so small that the difference is immaterial, and it is easier to work with the value available.

T A B L E 10-6A

Calculation of DLOM

A B C D E F G

4 Section 1: Calculation of the Discount For Lack of Marketability

6 1 Col. [C]

7 Pure Discount PV of Perpetual Remaining

8 Component z [1] Discount [2] Value

9 1 0.0% 0.0% 100.0% Delay to sale

10 2 9.0% 9.0% 91.0% Buyer™s monopsony power”thin markets

11 3A 4.9% 5.3% 94.7% Transactions costs”buyers

12 3B 14.3% 1.2% 98.8% Transactions costs”sellers

13 Percent remaining 89.9% Total % remaining components 1 2 3A 3B

14 Final discount 10.1% Discount 1 total % remaining

16 Section 2: Assumptions and Intermediate Calculations:

18 FMV-equity of co. (before discounts) $ 75,000