Maschmeyer's Nursery Inc. - Page 12

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          highest alternative return from assets of equivalent risk which             
          the investor forgoes as a result of his investment.3  Where, as             
          here, the fair market value of an asset substantially exceeds the           
          cost of acquisition, it would make little sense to measure the              
          opportunity cost of holding the asset by the return that the                
          investor could otherwise earn on the cost of the investment,                
          since he could sell the asset at its higher fair market value and           
          reinvest the proceeds.  Thus, the amount that Cobb’s hypothetical           
          investor forgoes by holding the subject property as of mid-1990,            
          and which the land must yield in order to induce him to continue            
          holding it, is the amount that the current cash value of the land           
          would yield if this sum were invested in financial assets of                
          equivalent risk.4                                                           
               In other respects, however, Cobb’s methodology seems to us             
          unsound.  First, we are not convinced that a 2-percent allowance            
          should be made for soil depletion.  Respondent’s expert testified           
          that information he received from other nursery operators whom he           
          interviewed suggests that topsoil loss over the limited period              


               3 See generally Brealey & Myers, Principles of Corporate               
          Finance 87-88, 248-249 (2d ed. 1984).                                       
               4 The capital gains tax that would be incurred in this                 
          alternative reinvestment strategy represents a cost that would              
          reduce the return from the alternative investment relative to the           
          return from holding the land.  Ideally this should be taken into            
          account.  However, the size of this cost would depend upon the              
          hypothetical investor’s effective tax rate and whether the tax              
          was spread out over multiple years by use of an installment sale,           
          matters as to which we have no information.                                 




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