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$2.0 to $2.6 million, rather than $1.8 to $2.4 million, though
still substantially lower than the value of IHC’s assets.
Petitioner attacks respondent’s expert’s use of a discounted
cash-flow approach to value on the grounds that that approach, or
any method based on a projection of future earnings, is not
feasible in the construction industry because of risks inherent
in the business, such as poor estimates, delays, litigation over
accidents, defects, and nonperformance, and cyclical demand.
Petitioner has not established that IHC suffers
disproportionately from any of the risks mentioned. Earnings of
the company are a factor to be considered in valuing stock. See
sec. 25.2512-2(f), Gift Tax Regs. Careful selection of the input
into the cash-flow analysis takes into account industry risks.
Moreover, IHC’s earnings for the 5-year period ending in fiscal
1992 do not suggest volatility. With the exception of a dip in
fiscal 1989, IHC’s earnings exhibited steady growth.
Consequently, the projected growth rates used by respondent’s
expert in his discounted cash-flow analysis are reasonable,
indeed, conservative. Thus, we believe that a discounted cash-
flow analysis can be used appropriately to value IHC. The weight
to be given to an earnings approach as opposed to an asset
approach depends in part on the degree to which the company is
actively engaged in the sale of goods or services, as opposed to
being a holding or investment company. See Ward v. Commissioner,
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