- 15 -
We conclude that the unadjusted value under the income
method did not include Deft's potential environmental
liabilities, and HML's consideration of Deft's potential
environmental liabilities within the lack of marketability
discount was proper. Thus, we shall apply a discount to the
unadjusted value under the income method for the potential
environmental liabilities.
Under the market method, HML utilized the average price to
earnings multiple for two similar paint and finishing companies
in determining the unadjusted value. Respondent contends that
these multiples already include the potential environmental
problems faced by the similar companies; therefore, it is
improper to also consider these liabilities in determining the
proper discount.
Respondent's expert testified that paint and finishing
companies trade at lower multiples as a result of the potential
environmental liabilities associated with the industry.
Petitioner did not provide any other explanation for the lower
multiples. We conclude that the multiples used by HML took into
account the potential environmental liabilities of the comparable
companies; therefore, we shall not apply a discount to the
unadjusted value under the market method for the potential
environmental liabilities.
c. Computing the Discount
We must determine an appropriate lack of marketability
discount for decedent's interest. We base our finding on a
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011