- 12 - Klemm determined the value of the shares based on (1) a capitalization of the corporation’s 1989 earnings, (2) a capitalization of the corporation’s 1989 revenues, and (3) a return-on-equity analysis using the book value per share as of the end of 1989. To capitalize the corporation’s 1989 earnings Klemm utilized a capitalization rate that, in his report, he did not relate to any specific publicly traded companies but merely stated was “appropriate” after discussing the “price/earnings ratio of the Dow Jones Industrial Average” at October 20, 1989, and the range of that average for 5 years. In his report, Klemm did not explain the capitalization rate that he used to capitalize the corporation’s revenues. To perform his return-to-equity analysis, Klemm again referred to Dow Jones Industrial Averages but failed to specify any companies comparable to the corporation. Klemm had prepared an earlier report valuing the shares, which was appended to the estate tax return filed by petitioner. In that earlier report, Klemm listed eight publicly traded companies that he considered comparable to the corporation. Seven of those eight companies were omitted from the report received as Klemm’s testimony. One company (Altera Corp.) is mentioned, but no analysis of that company to support Klemm’s valuation methods is provided. Using his three approaches, Klemm arrived at the following three indications of value for each of the shares:Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
Last modified: May 25, 2011