- 27 -
WACC of 18.4 percent, which he then used to value FIC. Not only
is the calculation of pretax WACC not accepted in the financial
community; we are puzzled as to why Mr. Shelton would want to
apply a marginal tax rate to compute an after-tax figure, only to
then attempt to convert it back to a pretax figure. Finally, we
question Mr. Shelton's use of a 40-percent marginal tax rate in
computing WACC, when the marginal tax rates derived from FIC's
income statements for FY 1979, FY 1980, and FY 1981 are 4.96
percent, 1.25 percent, and 31.69 percent, respectively.
After capitalizing the FY 1979 and FY 1980 EBIDT’s of FIC,
Mr. Shelton arrived at total enterprise values of $2,764,114,
$3,481,369, and $3,655,427 on February 2, 1980, September 30,
1980, and August 24, 1981, respectively. Mr. Shelton then
discounted the 1980 and 1981 enterprise values by 17 percent to
reflect a combined minority, lack of marketability, and “control
premium discount [sic]”, to arrive at a fair market value of
$22,942 per share as of February 1980 and $30,340 as of August
1981. Applying the annual exclusion to the 1981 gifts only,
acceptance of respondent's position would result in taxable gifts
by each decedent of $137,652 and $425,160 in 1980 and 1981,
respectively. Understatements of taxable gifts by each decedent
would then amount to $75,636 and $425,160 for 1980 and 1981,
respectively.
With the exception of his assessment of the prospects for
economic growth on the west coast of Florida, we reject, in toto,
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011