- 11 -
by THP. He determined replacement cost by adding to the actual
cost of that property an entrepreneurial profit of 13 percent. A
13-percent allowance for entrepreneurial profit was considered
reasonable by Mr. Knoll because it represented the weighted-
average cost of capital of UtilCo at the time of the sale-
leaseback transaction. Mr. Knoll determined that the
“acquisition cost/rehabilitation cost of a 50% interest to THP
was approximately $24,000,000.” Mr. Knoll also applied an income
approach, which involved determining the present value of
UtilCo's after tax cash flows (including residual value), using a
discount rate of 13 percent. Taking into account that present
value, he determined that the value of UtilCo's undivided
50-percent interest in all of the assets that he believed were
acquired by UtilCo and Chrysler Capital was $34,538,942 as of
December 17, 1987. In arriving at his opinion that the market
value of UtilCo's undivided interest was $32,250,000, Mr. Knoll
assumed that UtilCo enjoyed some negotiating advantage over THP.
Mr. Knoll assumed that the difference between the
$32,250,000 value of UtilCo's undivided interest and his
determination of the tangible asset value using the cost approach
($24,000,000) was due to UtilCo's acquisition of intangible
assets. Mr. Knoll concluded:
The fair market value of the Project largely relates to
its proposed power sale under the prenegotiated PPA,
[power purchase agreement] the leasing of the Facility
under the Participation Agreement, the guarantee of tax
savings under the Tax Indemnity Agreement, guaranteed
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