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FNBW
As with JFI, there were no actual arm’s-length sales of FNBW
stock, and therefore all of the experts relied on less direct
methods of valuing FNBW.13
Petitioner presented the testimony and expert reports of Mr.
Hitt (who had valued FNBW for the estate tax return) and Mr. Egan
(who had valued FNBW in preparation for trial). Respondent
presented the testimony and expert report of Charles F. Haywood,
a professor at the University of Kentucky. As noted above, the
parties stipulated that Mr. Hitt and Mr. Egan were qualified
appraisers. At trial, petitioner objected to the qualifications
of Mr. Haywood but ultimately withdrew the objection. We found
all of the reports to be useful, although all required
adjustments to address certain flaws, in the Court’s view.
Mr. Hitt’s Report
Mr. Hitt used an exclusively earnings-based approach to
value FNBW, combining three methods: Price to earnings (P/E)
ratio, price to equity (P/Eqt) ratio, and capitalized future
earnings.
13 There were some actual sales of the stock of FNBW in 1990
and 1991, but all three experts agree that none of them were at
arm’s length. In addition, there was an actual sale of stock in
1985 that may or may not have been at arm’s length, but we find
that it was not within a reasonable time of the valuation date in
this case.
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