- 32 -
and he used G&J's real borrowing costs to derive an appropriate
cost of debt capital for G&J as of the valuation date. Indeed,
G&J's 8.25-percent borrowing rate in 1991 was three-quarters of a
percent below the prime rate. By the valuation date, the prime
rate had dropped to 6 percent; therefore we believe that
Dr. Bajaj's opinion errs on the generous side, if at all. We
accord significant weight to Bajaj's opinion.
Further, the category immediately above "Very Small Cap.
Companies" in Mr. McCoy's rankings is entitled "Small Cap.
Companies", which, according to McCoy, has a reported required
rate of return of 15 percent. That figure is associated with a
nominal category that is not inconsistent with petitioners'
assertions (that G&J was a "small company"), and it is in harmony
with respondent's asserted value. Therefore, we conclude that an
appropriate cost of equity capital for G&J on the gift date was
15.5 percent.
V. Conclusion
For the foregoing reasons, we conclude that the value of the
gifted shares on the gift date was $10,910 per share.
Decisions will be entered
under Rule 155.
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