Estate of Ross H. Freeman, Deceased, Dennis Hersey, Executor - Page 16

                                       - 16 -                                         
          expert testimony in making our finding as to the value of the               
          shares.  We found Spiro to be convincing, and we agree with his             
          valuation, as corrected by respondent, as to the value of the               
          shares.  We had difficulty with Klemm’s valuation, and we will              
          set forth some of our more significant concerns.  We accorded               
          Klemm’s valuation no weight.                                                
          IV.  Klemm’s Testimony                                                      
               A.  Approaches to Valuation                                            
               Klemm followed three approaches in valuing the shares:                 
          Capitalization of earnings, capitalization of revenues, and                 
          return on equity.  His aim was to find the price that the market            
          would set for a share of the common stock of the corporation on             
          October 22, 1989.  Under each approach, such a market price was             
          the unknown to be discovered.  Under each approach, that unknown            
          was a function of two variables, one particular to the                      
          corporation (e.g., earnings) and one reflective of the market               
          (i.e., a variable characteristic of publicly traded companies               
          comparable to the corporation).  Our first major concern is with            
          Klemm’s identification of variables characteristic of publicly              
          traded companies comparable to the corporation.  Simply put,                
          petitioner has failed to persuade us that Klemm identified                  
          companies comparable to the corporation and used data with                  
          respect to those companies to derive the appropriate market-                
          reflective variables.  In our findings of fact, we pointed out              
          the discrepancy between Klemm’s earlier report and his expert               




Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011