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Shapiro used the WACC formula, concluding that the discount
rate was 14.57 percent. Button used the same formula in arriving
at his discount rate estimate of 24.75 percent. However, as we
indicated above, the beta that Shapiro used was too low, and
Button erroneously incorporated a small company risk premium and
a company-specific risk premium that elevated the discount rate
to an unreasonably high level. Substituting a beta of 1.18 into
Shapiro’s calculation and subtracting out the small company risk
premium and company-specific risk premium used in Button’s
calculation, we arrive at a discount rate of approximately
20 percent. Applying that discount rate to Button’s and
Shapiro’s cash-flow estimates and calculating terminal value for
each, fair market values of $31.577 million and $30.811 million,
respectively, are indicated. Taking into consideration the
inherently imprecise nature of valuation, we conclude and find as
a fact that, based on all of the factors set forth herein and on
the entire record, the fair market value of Schlegel UK was
$31 million on the valuation date.
Petitioner reported a $9.4 million fair market value for
Schlegel GmbH on its 1989 Federal income tax return. This amount
was the sum of the fair market value of the silent partnership,
$5.623 million, now stipulated to be $5,116,136, and the $3.777
million VRC fair market value estimate for Schlegel GmbH.
Petitioner now contends that the fair market value of Schlegel
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