| 8. |
a. |
The riskiness of the business would
suggest a high rate of return, so the capitalization factor would be a low
multiple. Also the capitalization method might be difficult to use because
of the problem of establishing a representative earnings figure.
|
| |
b. |
The Zilches' salaries should be
scrutinized carefully to determine if they are appropriate and if they are
not, the earnings should be adjusted before applying the capitalization
method.
|
| |
c. |
and d. It might be best to exclude
these nonrepresentative years when determining earnings for purposes of
the capitalization method.
|
| 13. |
a. |
In valuing this block of stock
it might be appropriate to apply discounts for both minority interest and
lack of marketability.
|
| |
b. |
For certain purposes a discount
for lack of marketability might be appropriate.
|
| |
c. |
The value of the preferred stock
will depend on its terms.
|
| 15. |
|
The value determined by the DFE
method (much more than the adjusted book value of tangible assets) suggests
a substantial value for intangibles. |
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