NEAL P. McCURN, CHIEF UNITED STATES DISTRICT JUDGE

Background

The plaintiff, Alexander Wilson, represents a class of former minority shareholders of Chenango Industries, Inc. ("Chenango or Chenango I"), who have brought suit challenging the legality of a joint proxy/prospectus ("proxy") issued by Great American Industries ("GAI") and Chenango as part of Chenango's 1979 merger into GAI. The defendants are GAI, Chenango, and various officers, directors, and attorneys connected with GAI and Chenango who were involved in issuing the proxy. Appeal was taken by plaintiffs from Wilson v. Great American Industries, 661 F. Supp. 1555 (N.D.N.Y. 1987) ("Wilson I"), in which this court granted judgment in favor of the defendants upon the determination that none of plaintiffs' many claims under federal securities statutes had merit. In Wilson I, after reviewing evidence and testimony on the question of damages, this court also held that "the defendants' experts were more credible than those of the plaintiff and conclude[d] that, even if a securities law violation had occurred, the plaintiff and the class members would have suffered no damages because of it." Id. at 1578.

The Second Circuit reversed, Wilson v. Great American Industries, Inc., 855 F.2d 987, 991 (2nd Cir. 1988), ("Wilson II"), holding that the proxy statement issued by the defendants contained five material omissions and misrepresentations in violation of Section 14(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9. n2 The five topics on which the proxy failed to properly inform the minority shareholders were: (1) Judge Duffy's decision adverse to GAI in United Rubber, Cork, Linoleum and Plastic Workers of America, AFL-CIO v. Great American Industries, Inc., 479 F. Supp. 216 (S.D.N.Y. 1979); (2) Chenango's substantial expansion plans which were made possible by the Broome County Industrial Development Authority's ("IDA") approval of a $ 1.8 million loan; (3) the non-disclosure of potential conflicts of interests due to the business relationships between David Dyer, Joseph Stack, Anthony Mincolla and the Koffmans; (4) the true worth of Lancaster Towers, a federally subsidized housing project owned and operated by Chenango; and (5) the true value of the Great American Corrugated Container Corporation ("GACCC") a subsidiary of GAI. The Second Circuit found each named defendant liable under Section 14(a) of the Act. Wilson II, 855 F.2d at 995. The appellate court then remanded the action with instructions that the plaintiff should be given a second opportunity to prove their damages. Id. at 997.

The essential terms of the merger agreement have previously been set forth as:

(1) GAI acquired Chenango for the book value of its stock, which totaled approximately $ 1,200,000;
(2) Chenango's shareholders exchanged their Chenango shares, which individually had a book value of $ 4.00, for newly issued GAI Series B preferred stock with a $ 10.00 per share par value. Accordingly, the exchange was made at a rate of two and a half Chenango shares for each share of GAI Series B preferred;
(3) GAI Series B preferred stock would pay a six percent annual dividend;
(4) GAI Series B preferred stock could be converted into GAI common stock at a rate of six Series B preferred shares for five shares of GAI common stock;
(5) GAI had the right to redeem Series B preferred stock for $ 10.00 per share after five years; and
(6) Chenango shareholders who owned fewer than 110 shares could receive $ 5.00 per share instead of exchanging their stock for GAI Series B preferred.

Wilson I, 661 F. Supp. at 1561; see also Wilson II, 855 F.2d at 990.

A meeting of Chenango's shareholders was held on October 18, 1979 in order for the shareholders to vote on the merger. The plaintiff, along with the majority of the other shareholders, voted in favor of the merger. Five shareholders, who owned 4,500 of Chenango's 300,777 outstanding shares, dissented. The transaction officially closed on October 31, 1979, and Chenango became Chenango II, a wholly-owned subsidiary of GAI. After the merger, an appraisal was done, and cash settlements were reached with those shareholders who dissented from the merger. Wilson I, 661 F. Supp. at 1561; see also Wilson II, 855 F.2d at 990. None of the individuals who dissented and received cash settlements are members of the plaintiff class.
 

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Measure of Damages

When discussing the appropriate measure of damages to be applied by this court on remand the appellate court stated:

We hold that the plaintiffs are entitled to recover damages equivalent to the benefit of the bargain they would have obtained had full disclosure been made. The determination of damages should include a valuation of Chenango's future earning power viewed prospectively from the date of the merger.

Despite the somewhat speculative nature of the defendants' profit as viewed from the date of the merger, once it is established that the defendants acquired the company by fraud, "the profit was the proximate consequence of the fraud;" it is thus "more appropriate to give the defrauded party the benefit even of windfalls than to let the fraudulent party keep them." Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.), cert. denied, 382 U.S. 879, 86 S. Ct. 163, 15 L. Ed. 2d 120 (1965). When, as here, the fraudulent buyer received more than the seller's actual loss, damages are the amount of the defendant's profit. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155, 92 S. Ct. 1456, 1473, 31 L. Ed. 2d 741 (1972); see also Osofsky v. Zipf, 645 F.2d 107, 112-13 (2d Cir. 1981).

*** Though Wilson II does not provide a precise methodology for measuring damages in the present action, it does supply a number of instructions which will guide this court's determination. These instructions are:

(1) that the defendants acted fraudulently;
(2) plaintiffs are entitled to the benefit of the bargain they would have obtained absent the fraud;
(3) that any determination of damages must include a valuation of Chenango's future earning power viewed prospectively from the date of the merger;
(4) damages must be set at the amount of the defendants' improperly obtained profit;
(5) damages may include an award to the plaintiffs of the appreciation in value of securities acquired through the fraud; and
(6) the better course is to give the defrauded plaintiffs the "benefit even of windfalls" than to allow the defendants to profit from the fraud. Id.

Determining precisely which profits were earned by the defendants as a "proximate consequence of the fraud" is a thorny issue. Defendants maintain that the plaintiffs are "entitled to recover the difference in value, if any, between what [they] received for [their shares of Chenango] and the price [they] might have received for those shares at the time of the merger if Joseph Stack's projections of the future earning power of Chenango I had been disclosed." Defendants' Post Trial Brief on Remand, at 5. This measure of damages would apparently focus solely upon the alleged undervaluation of Chenango in the proxy, and set damages at the difference between the actual and the proxy price of Chenango.

The plaintiffs, on the other hand, *** claim to have incurred damages both as a result of the undervaluation of their shares of Chenango in the proxy and the overvaluation of what they received for their Chenango stock -- the GAI Series B preferred. The first proposal would permit plaintiffs to recover the actual "value of what they sold, their interest in Chenango, [minus] the [actual] value of what they received, the shares of Series B preferred." Plaintiff's Pre-Trial Brief at 4. ***

The seminal case in this area is Janigan v. Taylor, 344 F.2d 781 (1st Cir.), cert. denied, 382 U.S. 879, 86 S. Ct. 163 (1965), which set out the measure of damages in a situation where, as here, securities had been sold to a fraudulent party. n4 The Supreme Court has cited Janigan favorably on at least two occasions for the proposition that "where the defendant received more than the seller's actual loss . . . damages are the amount of the defendant's profit." Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155, 92 S. Ct. 1456, 1473, 31 L. Ed. 2d 741 (1972); Randall v. Loftsgaarden, 478 U.S. 647, 663, 106 S. Ct. 3143, 3153, 92 L. Ed. 2d 525 (1986). The aim of the Janigan measure of damages is to prevent "unjust enrichment of a fraudulent buyer." Randall, 478 U.S. at 663, 106 S. Ct. at 3153. Under Janigan a court may, given appropriate circumstances, "award a plaintiff the unrealized appreciation of securities obtained through fraud" even in "situations where the purchaser [has not resold the securities] within a short time." Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1305 (2nd Cir. 1973).

n4 The key language and analysis of Janigan with respect to the appropriate remedy is as follows: With respect to damages we draw a distinction between cases where, by fraud, one is caused to buy something that one would not have bought or would not have bought at that price, and where, by fraud one is induced to convey property to the fraudulent party. In the former case the damages are to be reckoned solely by "the difference between the real value of the property at the date of its sale to the plaintiffs and the price paid for it, with interest from that date, and, in addition, such outlays as were legitimately attributable to the defendant's conduct, but not damages covering 'the expected fruits of an unrealized speculation.'" . . . On the other hand, if the property is not bought from, but sold to the fraudulent party, future accretions not foreseeable at the time of the transfer even on the true facts, and hence speculative, are subject to another factor, viz., that they accrued to the fraudulent party. It may, as in the case at bar, be entirely speculative whether, had plaintiffs not sold, the series of fortunate occurrences would have happened in the same way, and to their same profit. However, there can be no speculation but that the defendant actually made the profit and, once it is found that he acquired the property by fraud, that the profit was the proximate consequence of the fraud, whether foreseeable or not. It is more appropriate to give the defrauded party the benefit even of windfalls than to let the fraudulent party keep them. . . . It is simple equity that a wrongdoer should disgorge his fraudulent enrichment. 344 F.2d 781, 786 (1965) (emphasis added).

The Janigan measure of damages may be juxtaposed against what is commonly referred to as "out-of-pocket" damages, that is, "the difference between the fair value of all that the [plaintiff] received and the fair value of what he would have received had there been no fraudulent conduct." Randall v. Loftsgaarden, 478 U.S. at 661-62, 106 S. Ct. at 3152. A further twist in the methodology for assessing damages has been termed the "benefit-of-the-bargain rule." This measure of damages permits a defrauded seller of securities to collect "the difference between what was represented as coming to the [sellers] and what they actually received." Osofsky v. Zipf, 645 F.2d 107, 114 (2nd Cir. 1981). However, in the present case this court has been directed to assess damages as the amount of the defendants' profit. Wilson II, 855 F.2d at 996. The Second Circuit's directive permits this court, taking into account the particular circumstances of this case, the narrow discretion to taylor a measure of non-punitive damages which are not too speculative and which does the best job of compensating an injured plaintiff while disgorging improperly obtained profits. See also Gerstle v. Gamble-Skogmo, Inc., 478 F.2d at 1303-06; Osofsky v. Zipf, 645 F.2d at 111-14 (Section 28(a) of the Securities Exchange Act of 1934 "speaks only in general terms, but we do not believe that its overall intent is to restrict the forms of nonspeculative, compensatory damages available to defrauded parties. . . . We believe that the purpose of section 28(a) is to compensate civil plaintiffs for economic loss suffered as a result of wrongs committed in violation of the 1934 Act, whether the measure of those compensatory damages be out-of-pocket loss, the benefit of the bargain, or some other appropriate standard." Id. at 111).

This court holds that the appropriate measure of damages is [that] proposed by the plaintiff, that is, the difference in the actual value of all that the plaintiffs should have received for their shares of Chenango and the actual value of what they received in exchange for their Chenango stock (i.e. the GAI Series B preferred stock). Under this formula, the court will have to engage in a prospective valuation of both Chenango and the GAI Series B preferred as of the date of the 1979 merger. However, the court will not engage in an evaluation of the post-merger appreciation in the value of GAI or Chenango, nor will the court award damages based upon this post-merger accretion in value. Rather, an award of interest, if necessary, will compensate the plaintiff fairly and adequately for any loss. This measure of damages will most effectively disgorge the profits earned by the defendants because it is aimed at taking from the defendants and providing to the plaintiffs all that the defendants might have earned on the 1979 merger. It compensates the plaintiff class for any overvaluation of GAI Series B preferred and any undervaluation of Chenango. ***
 

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Calculation of Damages

The measure of damages which will be applied is the difference in the actual value of plaintiffs' shares of Chenango and the actual value of what they received in exchange for their Chenango stock, that is, the GAI Series B preferred stock. The valuations will be made viewing the merger transaction prospectively from the date the merger was completed -- October 18, 1979.

As of the date of the merger, Chenango was a moderately sized corporation which provided custom manufacturing services, as a subcontractor, to electronics equipment manufacturers. Chenango was a "job shop" which employed approximately 600 workers mostly in the manufacture of commercial printed circuit boards and military multi-layer boards, and the assembly of small electromechanical products. The company did not engage in research and development. Chenango also owned as a subsidiary a federally subsidized moderate and low income housing project for the elderly known as Lancaster Towers. The company's central offices were located in Broome County, New York. The chairman, president, and treasurer of Chenango was Joseph M. Stack, who, together with the Koffmans, controlled approximately 71% of the company. The 300,777 outstanding shares of Chenango were traded "over the counter" by a small number of brokers in the Broome County area. From the limited information available, it appears that the price of a share of Chenango ranged from a high of 5 1/2 to a low of 3 1/4 over the two-year period before the merger. Most sales of the stock were to Mr. Stack, and then, mostly as an accommodation to the shareholder.

Chenango's main customers were sizable manufactures in the computer, communications, industrial controls, and medical instrumentation industries. IBM was Chenango's largest customer -- accounting for approximately 50% of Chenango's business. At the time of the merger Chenango occupied almost 100,000 square feet of office, manufacturing, and warehouse space; one-third of this space was owned by the company while two-thirds was leased.

Prior to the date of the merger, Chenango had embarked on a substantial expansion plan to construct an additional plant, renovate existing facilities and purchase new equipment. The expansion of the capacity to manufacture multi-layer circuit board was to be financed by the issuance of $ 1.8 million in industrial development bonds by the Broome County IDA. As stated by the Appellate Court in Wilson II, while these expansion plans were not formally completed before the merger, there was a strong probability that the financing and subsequent expansion would come to fruition. 855 F.2d at 992-93. The expansion envisioned also included the addition of nearly 100 employees.

Testimony of five expert witnesses concerning damages was placed before the court at the original trial and the trial on remand. Three experts testified on behalf of the plaintiff and two testified on behalf of the defendants. As will be discussed, this court finds the testimony of plaintiffs' expert Thomas Higgins to generally be the most thorough and credible. However, the court wants to make clear its impression, after the trial on remand, that all of the experts appeared to have engaged in a rather exceptional amount of numbers juggling to reach a desired result. One of the methods employed by Higgins to estimate the actual value of Chenango in 1979 (a well accepted formulation known as the "Gordon Model"), when properly applied, appears to be the least likely to be subject to result orientated manipulation. ***

[After a lengthy debunking of the other witnesses, the court turned to the testimony of Thomas Higgins]

Mr. Higgins is the president of Higgins, Marcus & Lovett, Inc., a business valuation firm located in Los Angeles, California. Though he did not testify at the original trial, Higgins provided testimony and submitted an extensive report on behalf of the plaintiffs at the trial on remand.

Three valuation methods were employed by Higgins to estimate the fair market value of Chenango as of October 18, 1979 (the "valuation date"), the date the Chenango shareholders met and voted to approve the merger with GAI. These methodologies were: (1) the capitalization of earning power method, (2) the sale of comparable company method, and (3) the publicly-traded comparable companies method. n6 The values of Chenango's common stock which were obtained were then weighted and averaged to obtain an estimate of the fair market value. In the cover letter to the report, Higgins defined the term "fair market value" as representing "the amount at which a business interest would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts." (Plaintiffs' Exhibit 1, Trial on Remand, at i). Higgins estimated the fair market value of Chenango to be $ 5,985,000, which calculates out to a $ 19.90 per share price. As is apparent from the testimony and the report, Mr. Higgins limited the information he relied upon to that which was available to the plaintiff class as of the valuation date. In this manner, the methodology employed by Mr. Higgins most closely followed the Second Circuit's directive in Wilson II to include "a valuation of Chenango's future earning power, viewed prospectively from the date of the merger" in any calculation of damages. 855 F.2d at 996.

n6 The Capitalization of Earning Power formula as applied to Chenango was defined as a method which: Reflects the Company's expected earnings base at the Valuation Date which grows at a rate of 18% for the first five years, and at a long term rate of 7% for all subsequent years, discounted by the expected rate of return on equity that is adjusted for growth of a perpetual stream of annual earnings which will grow by an estimated percentage each year.

The Sale of Comparable Company method is defined as one which: Examines the sale price and value of a company comparable to [Chenango] and examines the price to earnings (P/E), price to book value (P/BV), and price to sales (P/S) of the comparable company, adjusts these ratios for application to the Company, and then calculates these adjusted ratios for the Company to determine a value for the Company.

The Publicly-traded Comparable Companies method: Examines the size, capitalization, and other characteristics of publicly-traded companies that may be similar to [Chenango]. After eliminating those companies that are determined to be different from the Company, the price to equity (P/E), price to book value (P/BV), and price to sales (P/S) of the publicly-traded comparable companies are applied to the Company to determine a value for the Company if it [was] publicly-traded on a minority basis. A control or takeover premium is then calculated to determine the fair market value of the common stock of the Company if sold as an entirety as of the Valuation date. Plaintiffs' Exhibit 1, Trial on Remand, at 48-49.

Higgins first reviewed the general economic outlook as of the valuation date. According to the report there was every indication in 1979 that the country was heading into a recession. The economy was sluggish and the rate of growth in the GNP had fallen sharply to 1.1%. There were economic shocks caused by the oil embargo, rising interest rates and high inflation. Consumer spending was weak. Most economists were forecasting a recession and trends in the index of leading economic indicators predicted a worsening economy. However, corporate profits were stable and the stock market was still considered solid. With respect to the electronics industry (i.e. the manufacturers of semiconductors, capacitors, transistors, printed circuit boards, etc.) the general outlook was moderate to good, with a heavy backlog of orders for electronic components due to the introduction of new products.

The economic forecast for IBM, Chenango's largest customer, was also analyzed prospectively from the valuation date. It is Mr. Higgins' well-taken opinion that the economic outlook for IBM, which provided Chenango with approximately 50% of its business, would have a significant effect on Chenango's futurperformance and consequently, its value. The general opinion at the time was that IBM, though still strong, was in a period of decline. Profits were lower and revenues were weak for the second and third quarters of 1979. Estimated earnings had been reduced by most analysts for the remainder of 1979 and for 1980. An important factor in the declining profits, however, was that IBM was investing heavily in increased plant capacity, cutting prices, and introducing new product lines -- steps which were viewed as having positive long-term implications. IBM still retained a 40 to 60% share of the computer systems market, had a heavy backlog of orders, and was beginning to bring on line the IBM P.C. project -- which was also viewed as positive news for IBM.

Higgins next performed a detailed analysis of Chenango's finances relying upon the financial statements of the company for the fiscal years ending September 30, 1974 to 1978, and interim financial information up to June 30, 1979. After a review of the sales, gross profits, operating expenses, net profits, debt, and various economic ratios used in evaluating a company's financial status, Higgins concluded that Chenango compared favorably to other corporations in the electronic components industry as of the valuation date. The net income after taxes for the twelve month period ending on June 30, 1979, was $ 291,000. n7 As of June 30, 1979, Chenango's total assets were $ 2.71 million, total liabilities were $ 1.46 million, total long term debt was $ 491,000, and the net worth of Chenango (the shareholder's equity) was $ 1.25 million.

n7 It should be noted that Chenango's net income in 1974 was approximately $ 289,000. Net Profits fell sharply and then recovered over the next few years. However, given the rate of inflation at the time it would appear that net income, in real terms, may well have been down.

Higgins, appraisal of the fair market value of Chenango was premised on an initial determination concerning the sustainable net income of Chenango viewed prospectively from 1979. Higgins relied upon Joseph Stack's net income projections for fiscal years 1979-83 which were made in April of 1979 to the Broome County IDA. To corroborate the Stack projections Higgins then performed a "regression analysis" of Chenango's earnings from 1974 to June of 1979. What this regression analysis entailed is still somewhat of a mystery to the court. As one might expect, Higgins testified that Stack's optimistic projections concerning Chenango's future net income was valid. In any event, this court has now accepted plaintiffs' general position that the Stack projections are valid and represent an appropriate projection of Chenango's future earnings potential. Though Mr. Stack may have been engaging in a certain amount of puffery in his projections, once having attested to their validity before the Broome County IDA and then having been found by the appellate court to have engaged in securities fraud, both he and the other defendants must abide by them.

The first method employed by Mr. Higgins, known as the Capitalization of Earnings Power method, appears to be the most credible. The reason the court finds this method to be the most appropriate is not due to Higgins' application of same. There were serious errors made by Higgins. Rather, this method, which employs the well known "Gordon Model," appears, when properly applied, to be the least subject to result orientated manipulation while at the same time most closely following the Appellate Court's mandate. n8 This model essentially defines the value of a corporation as the combined value of all future earnings. By a fairly crude analogy, this method may also be seen as a complex version of the basic financial formula that defines income (I) as the product of principal (P) multiplied by the rate of return (R), or:

I = P x R

which can be reformulated if the unknown variable is the principal to read:

P = I / R

In the present case, the value of all future earnings will have to be discounted back so that the value is expressed in 1979 dollars.

n8 Use of the Gordon Model to determine the value of a closely held corporation is discussed in E. Brigham & L. Gapenski, Financial Management: Theory and Practice (5th Ed.) at 147-152 and S. Pratt, Valuing a Business: The Analysis and Appraisal of Closely Held Companies (2nd Ed.) at 98.

Many of Mr. Higgins' initial premises are acceptable to the court. Higgins employed the 18% annual growth rate in net income projected by Joseph Stack -- estimating that the growth would continue at 18% for five years and then level out at 7% due to normal growth cycles. The projected net income of Chenango for 1979 was $ 345,000. Higgins estimated the rate of return that an investor would expect from a business similar to Chenango -- finding the necessary rate of return to be 21.4%. n9 To calculate the value of Chenango Higgins used a complex version of the "Gordon Model." The most basic formulation of the Gordon Model is:

PV = E (1 + g) / (R - g)

where:

PV = Present Value
E = Base level of earnings from which the constant level of growth is expected to proceed as of the valuation date.
g = Annually compounded rate of growth in earnings.
R = Discount rate (investor's required rate of return).

The Gordon Model as employed by Higgins reads:

Value of Equity = E(1 + G[1-5])<5> (1 + G[6+]) / (R - G[6+])

where:

E = Estimated base earning power of Chenango = $ 345,000
G[6+] = Long term annual growth rate in earnings = 7%
G[1-5] = Growth rate in earnings years 1-5 = 18%
R = Expected rate of return on equity = 21.4%

Thus,

Value of Equity = $ 345,000(1.18)[5] (1.07) / (.214 -.07) = $ 5,865,000

However, as was correctly identified by the defendants on cross examination, Higgins' application of this formula actually is an estimate of Chenango's future earning power as of 1984, 5 years after the merger, rather than an estimate of the future earnings power as of 1979. See Defendants' Post Trial Brief on Remand, at 13-16. Essentially what Higgins did was to come up with an estimate of Chenango's base earning power as of 1984 (which is accounted for by E(1 + G[1-5])<5> or $ 345,000(1.18)<5>) and plugged that 1984 value into the normal Gordon Model. If this amount is discounted back to 1979 at a rate of 21.4% per year (i.e. multiply $ 5,865,000 by 1/1.214 each year for five years) one obtains a 1979 value of $ 2,223,953.

n9 To calculate the expected rate of return Higgins employed the Capital Asset Pricing Model or CAPM. This formula may be summarized as:

Expected Rate of Return = RF + B(Rm - R1)

RF = Risk-free Rate of Return (set at 10% rate of return on long term government bonds).
B = Company's Volatility (estimated from the average B factor of corporations engaged in the "electric components" industry set at 1.52).
Rm = Long Term Expected Rate of Return for Market as a Whole (set at 11%).
R1 = Long Term Risk-free Rate of Return on Market as a Whole (set at 3.5%).

This calculation works out as:

21.4% = 10.0% + (1.52 x (11.0% -3.5%))

The court finds Higgins' use of this method to calculate the expected rate of return to be credible.

However, the court must also account for the value of Chenango's earnings from 1979-1984. The appropriate application of the Gordon Model, given Higgins' estimates, would entail two calculations: one which accounts for the 1979 value of Chenango's earnings for the time period of 1979-1984 where it was estimated that Chenango would grow at a annual rate of 18%, and one which accounts for the 1979 value of Chenango's post 1984 earnings where it was estimated that Chenango would grow at a rate of 7% annually. The sum of these two values reflects the entire 1979 value of Chenango's future earnings. As discussed above, Mr. Higgins has performed the second calculation for the post 1984 period.

The calculation for the 1979-1984 time period requires the court to take the 1979 estimated earnings of the company and multiply that sum by the projected 18% annual rate of growth to receive the estimated earnings for Chenango in 1980-84. Next, in order to determine the 1979 value of the 1980-84 earnings, the 1980-84 figures must be discounted to 1979 dollars. Higgins estimated that an investor in Chenango would require a 21.4% annual rate of return. The value of earnings will therefore be discounted at this rate. This calculates out as follows:

Therefore, the 1979 value of Chenango's earnings for the five years of 18% growth is $ 1,584,861. Adding this value to that received for the post-1984 period gives the 1979 value of Chenango's future earnings, or 1979 Value = $ 1,584,861 + $ 2,223,953 = $ 3,809,000 (rounded) To this value must be added the Joseph Stack's estimate of the value of Lancaster Towers, that is $ 1.1 million.