-42-
involved the application of a price/earnings ratio based on U.S.
companies in the pulp and paper industry to a 3-year weighted
average of historical earnings, while the income approach discounted
PCC's expected dividends to present value at a 24-percent rate. The
Corporate Finance study concluded that IFC's 28.7-percent interest
in PCC had a value of $22,783,000 under the market approach and
$16,884,000 under the income approach. In attempting to harmonize
the two methods, the study accorded the income approach twice the
weight of the market approach and concluded that the 28.7-percent
interest in PCC had a $18,850,000 value. The study did not consider
the repatriation restriction or the foreign exchange political risks
associated with owning a Brazilian investment.
As holder of more than 10 percent of PCC's share capital,
petitioner would be entitled, as a matter of Brazilian law, to elect
a representative to each of the two councils responsible for PCC's
management, the Council of Administration and the Fiscal Council.
Petitioner anticipated receiving fees for each of the two seats on
PCC's management councils in the amount of $7,500 per month in
cruzados, or the cruzado equivalent of $180,000 annually. By
February 23, 1987, petitioner had revised its value for IFC's 28.7-
percent interest in PCC to $24 million by adding the director's fees
from one board seat to projected dividends from PCC under the
Corporate Finance study's income approach.
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