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Lahmann
Lahmann valued Schlegel GmbH, attempting unsuccessfully to
identify comparable third-party transactions. Thus, he
determined the fair market value based on the sustainable profits
of the company at the valuation date. He projected the
sustainable profits in perpetuity after November 30, 1989, by
adjusting the recorded annual profits by extraordinary expenses
and income relating to transactions that were not part of the
business of Schlegel GmbH at the valuation date. German income
taxes (i.e., trade tax on income and corporation taxes) were
deducted from the adjusted profits as the final component of the
calculation. Lahmann’s projections were then discounted to their
present value using a discount rate that was composed of the
long-term interest rate for risk-free Government bonds
(7.6 percent) reduced by the German corporation tax rate of
36 percent on distributed profits. The resulting adjusted
discount rate of 4.86 percent was increased by the following risk
elements: A market risk premium of 5.3 percent for general
business risk (based on empirical investigation in Germany), a
small company risk premium of 2 percent, and a 1-percent
specific-company risk premium because Schlegel GmbH could
potentially be held liable for soil contamination. The overall
discount rate was 13.16 percent. The application of this
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