- 11 - by THP. He determined replacement cost by adding to the actual cost of that property an entrepreneurial profit of 13 percent. A 13-percent allowance for entrepreneurial profit was considered reasonable by Mr. Knoll because it represented the weighted- average cost of capital of UtilCo at the time of the sale- leaseback transaction. Mr. Knoll determined that the “acquisition cost/rehabilitation cost of a 50% interest to THP was approximately $24,000,000.” Mr. Knoll also applied an income approach, which involved determining the present value of UtilCo's after tax cash flows (including residual value), using a discount rate of 13 percent. Taking into account that present value, he determined that the value of UtilCo's undivided 50-percent interest in all of the assets that he believed were acquired by UtilCo and Chrysler Capital was $34,538,942 as of December 17, 1987. In arriving at his opinion that the market value of UtilCo's undivided interest was $32,250,000, Mr. Knoll assumed that UtilCo enjoyed some negotiating advantage over THP. Mr. Knoll assumed that the difference between the $32,250,000 value of UtilCo's undivided interest and his determination of the tangible asset value using the cost approach ($24,000,000) was due to UtilCo's acquisition of intangible assets. Mr. Knoll concluded: The fair market value of the Project largely relates to its proposed power sale under the prenegotiated PPA, [power purchase agreement] the leasing of the Facility under the Participation Agreement, the guarantee of tax savings under the Tax Indemnity Agreement, guaranteedPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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