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2. Assumption of a Zero-Percent Corporate Tax Rate
Dr. Bajaj knew that G&J was an S corporation on the
valuation date, and, based on information that he had received
from G&J's management, he assumed that it would remain an
S corporation indefinitely. He further assumed that virtually
all of G&J's earnings would continue to be distributed to its
shareholders. Dr. Bajaj determined that a zero-percent corporate
tax rate was an appropriate assumption to make in determining the
earnings of G&J available for distribution. Dr. Bajaj also
ignored shareholder level taxes in arriving at his discount rate.
3. Lack of Marketability Discount
Dr. Bajaj testified that an appropriate discount for lack of
marketability applicable to G&J's shares on the valuation date
was 25 percent. In arriving at his conclusion, Dr. Bajaj first
reviewed various commonly cited published studies that examined
marketability discounts. He divided the studies into two
categories: (1) studies that analyzed sales of restricted stock
by firms that also had publicly traded shares, and (2) studies
that compared share prices observed in successful initial public
offerings (IPOs). With regard to the first category, Dr. Bajaj
concluded that, due to variations in characteristics of the
observed firms and transactions, only about 10 to 15 percent of
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