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values, and the uncertainty of the timing of future cash-flows.
In analyzing expected return, Mr. Buck testified that a
hypothetical buyer would consider Johnco's historical earnings
and cash-flows, income taxes, and liquidity.
Mr. Buck also considered Johnco's liquidation value based
upon the stipulated net asset values, taking into account the
effect of the built-in capital gains. Assuming a 31-percent
capital gains rate, Mr. Buck calculated the net liquidation of
Johnco as follows:
Net asset value $6,958,000
Less: Estimated capital gains taxes (1,698,000)
Less: Estimated selling costs (420,000)
Net liquidation value 4,840,000
While acknowledging that a hypothetical buyer would consider the
liquidation value of Johnco's assets to be the primary factor,
Mr. Buck testified that such a buyer would also consider Johnco's
operating results as an indicator of its going concern value.
Based upon past operating results, Mr. Buck concluded that going
concern value would not be of interest to a prospective buyer
because a greater amount could be realized through liquidation,
unless it could be determined that past operations had been
"intentionally depressed" to produce below-normal profits. Mr.
Buck noted that a buyer of decedent's Johnco stock would in
theory have the ability to replace Johnco's existing management
and alter Johnco's operating strategy. According to Mr. Buck,
the potential need to make such changes would create concerns and
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