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cash-flow.12 Since, in applying his discounted cash-flow
approach, Dr. Bajaj assumed a preshareholder-tax discount rate,
he made no error in failing to tax affect the expected cash-flow.
If Mr. Wilhoite’s criticism is based on his assumption that
Dr. Bajaj wrongly disregarded shareholder level taxes, then he is
in error.
2. Lack of Marketability Discount
We have considered the expert testimony on the lack of
marketability issue, and we weigh that testimony in light of the
experts' qualifications and other credible evidence. See Estate
of Newhouse v. Commissioner, 94 T.C. at 217. While we recognize
the severity of the restrictions imposed both by law and by and
among the existing shareholders, which limited the marketability
of G&J's shares in 1992, we find Dr. Bajaj's testimony to be
thorough and more persuasive than Mr. McCoy's. Taking account of
the inherently subjective and imprecise nature of the
12 Thus, assume that, in consideration for today investing
$100, an investor is to receive $110 in 1 year. The interest
rate implicit in this example is 10 percent. Assume that the
investor’s return will be subject to a 40-percent tax. If the
investor considers that his after-tax return will be $106 and
assumes an after-tax discount rate of 6 percent, then the present
value of the after-tax cash flow of $106 would be $100. If, on
the other hand, the investor considers that his pretax return
will be 10 percent, then the present value of the pretax cash
flow of $110 would also be $100. Hence, there is no difference
in result.
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