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Finally, Mr. Slack capitalized the net income from the lots
at a rate of 29.41 percent to arrive at the fair market value of
the lots. This capitalization rate has both debt and equity
components as well as adjustments for risk and illiquidity.
According to Mr. Slack, the income flow from the lots as
determined under this subdivision approach was negative. Thus,
Mr. Slack determined that residential use of these lots was not
the highest and best use. Rather than consider other potential
uses for the lots, Mr. Slack thought that it was more reasonable
to estimate the value of the lots at $50 each, or $3,400 total.
In estimating the value of the improvements at Port Ludlow,
Mr. Slack utilized a cost approach. He rejected the market
approach as a reliable indicator of value because of the lack of
good comparable sales. He also rejected the income approach,
because there was insufficient data from which to precisely
determine revenue and costs. In addition, in most cases, the
income approach yielded extremely low or negative values. Mr.
Slack utilized the market approach, however, to estimate the
value of the land underlying the improvements. Mr. Slack
determined the following fair market values for the land and
improvements at Port Ludlow:
Land and Improvement Value
Golf course and
related improvements $1,571,661
Convention center 117,422
Restaurant, sales office, and
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