Calculate the value of 46% equity interest using the capitalization of earnings methodology. Use the following benefit stream in your calculation. Use the assumptions below the exercise to complete the calculation: Unweighted average net income $ 829,700 Non-cash charges (e.g. depreciation, amortization, deferred revenue, deferred taxes) 400,000 Capital expenditures necessary to support projected operations (300,000) (Additions) deletions to net working capital necessary to support projected operations (100,000) Changes in long-term debt from borrowing necessary to support projected operations - Changes in long-term debt for repayments necessary to support projected operations (100,000) Unweighted net cash flows to equity $ 729,700.

Sample Company Capitalization of Earnings Method December 31, 2005

Benefit stream $

Capitalization rate

Value of the business before non-operating assets

Non-operating assets Value of the business

Shares outstanding Per share value

Discount First discount or premium:

Lack of control discount percentage %

Lack of control discount

Adjusted per share value Discount

Second discount or premium: Lack of marketability discount percentage % Lack of marketability discount

Adjusted per share value Number of shares valued

Value of 46% equity (on a non-marketable basis)

$ Assumptions:

1 Sale of 46% equity interest

2 Minority interest discount of 20%

3 Marketability discount of 28%

4 Type of benefit stream unweighted average of net cash flows to equity

5 Total shares outstanding are 100,000

6 Capitalization rate use 14.02% see capital asset pricing model Chapter Five

7 Long-term sustainable growth rate of 3% 8 Non-operating assets are $600,000