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the decedent's interest in Deft on the alternate valuation date
was $6,266,000.4
Initially, HML determined the value of a 100-percent
interest in Deft without any discount using three methods of
valuation (the unadjusted values): (1) The adjusted net worth
method (the asset method), (2) the discounted cash flow method
(the income method), and (3) the guideline public companies
method (the market method).
Under the asset method, HML determined the unadjusted value
on the alternate valuation date was $12,070,000. In making this
determination, HML restated Deft's tangible assets from book
value to fair market value. HML then subtracted Deft's
liabilities5 from the fair market value of Deft's tangible
assets. Next, HML determined the value of Deft's intangible
assets by capitalizing the excess, if any, of Deft's current
sustainable earning power over the normal expected return of
Deft's tangible assets. HML determined there was no excess;
therefore, HML attributed no value to Deft's intangible assets.
Lastly, HML added the net market value of Deft's tangible assets
($12,070,000) to the value of their intangible assets ($0) to
derive the unadjusted value under this method.
4 Petitioner also submitted a report prepared by Tuerk &
Associates analyzing the impact of the potential environmental
liabilities on the marketability of the Deft shares. We find
that report unhelpful, and we do not rely on it.
5 These liabilities did not include Deft's potential
environmental liabilities.
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Last modified: May 25, 2011