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C. Stock Values Before Considering Discounts
1. Hawkins' Analysis
8 We believe Hawkins appropriately used the income
capitalization and market or public guideline company9 methods to
appraise Home and Rock Hill stock. He adjusted Home's and Rock
Hill's earnings per share to exclude the impact of unusual or
nonrecurring income and expense items.
Hawkins compared 10 local or regional publicly traded
telephone companies to Home and Rock Hill. From those companies
he derived multiples for price to latest year earnings, price to
3-year average earnings, price to latest year gross cash-flow,
price to 3-year average gross cash-flow, dividend yield or
capitalization of latest year's dividends, and dividend yield on
capitalization for 3-year average dividends. He properly
compared dividends paid by Home and Rock Hill to those paid by
the guideline companies, excluding special nonrecurring
dividends.
8 The income capitalization method is used to estimate the
fair market value of income-producing property by considering the
present value of the future stream of income to be produced by
that property. See Estate of Bennett v. Commissioner, T.C. Memo.
1989-681, affd. 932 F.2d 1285 (4th Cir. 1991).
9 The market or public guideline company method is used to
estimate the fair market value of a company's stock by comparing
it with the stock of similar, publicly traded (i.e., "guideline")
companies.
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