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1. Petitioner's Experts
At trial, petitioner relied on the reports of two experts,
John H. Lax and Mr. Buck. Mr. Lax, a principal in the Valuation
Services Group of Arthur Andersen LLP (Andersen), has more than
25 years of experience in business valuation and holds the
designations of certified management accountant and accredited
senior appraiser from the Institute of Management Accounting and
the American Society of Appraisers, respectively. Mr. Buck is a
managing director of RPR, holds an M.B.A. from Harvard Business
School, and has more than 30 years of experience in corporate
finance.
For purposes of their estimates, both of petitioner’s
experts assumed that they were valuing 80,485 shares, or 97
percent, of the outstanding stock of Johnco.
a. John H. Lax
Mr. Lax used income and market approaches in valuing
decedent's Johnco stock to show that Johnco was not viable as a
going concern. Starting with a hypothetical purchase price of
$7 million,14 he assumed that a prospective purchaser would
leverage Johnco by financing 75 percent of the purchase price
with a 10-percent, 10-year term loan. Next, Mr. Lax forecasted
income for the 10-year period in which the term loan would be
outstanding if the timberland were managed for sustainable yield.
He assumed that timber growth and inflation would be 4 percent
14 Mr. Lax's report provides no basis or explanation for the
choice of the $7 million purchase price.
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