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and (2) the DCF method. Ultimately, Zitelman selected the DCF
method because, in his view, a "potential buyer" of decedent's
interest would be an individual or entity seeking long-term cash-
flows but having no expectation of receiving the return of its
invested capital.
Under the DCF method, Zitelman estimated the fair market
value of decedent's interest by calculating the present value of
decedent's pro rata share of the partnership's expected net cash-
flows. He calculated the net income due pursuant to the lease
and the net reversionary interest in the land.
For purposes of calculating the annual rent, Zitelman
assumed that the fair market value of the unencumbered land, as
of the valuation date and as of January 1, 1993, was $5,479,883.
Thereafter, Zitelman assumed the value increased annually at a
rate of 2.6 percent. He also assumed the rental rate for the
lease period of January 1, 2013, through March 31, 2062, was 7.05
percent.
In estimating all of the expenses for 1992 except for the
management fees and the franchise tax, Zitelman averaged the
deductions reported upon the partnership's Federal income tax
returns for taxable years 1989 through 1991. See appendix A.
Thereafter, he treated the expenses as increasing at a rate of
2.6 percent per year.
Zitelman estimated the management fee as equal to 5 percent
of the gross rental income and the franchise tax expense as equal
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