Estate of Charles a. Boratello, Deceased, C. Norman Borgatello and Josephine E. Donnelly, Co-Executors, and C. Norman Borgatello, Successor Trustee to the Charles A. Borgatello Living Trust - Page 17




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            the parties arrive at different values for MVN and MVS is that                             
            their experts make different assumptions concerning the discount                           
            rate.7                                                                                     
                  Both Mr. Marx and Mr. Holden arrive at a discount rate by                            
            abstracting sales of comparable commercial properties in order to                          
            derive a capitalization rate.  The capitalization rate is the                              
            property's cash-flow divided by its sales price.  The discount                             
            rate is ascertained by making adjustments to the capitalization                            
            rate, primarily for inflation.  Mr. Holden's capitalization rate                           
            was derived from a pool of comparable sales more extensive than                            
            Mr. Marx's capitalization rate.  Most of Mr. Holden's                                      
            comparables, however, are properties located in places outside                             
            the Montecito-Santa Barbara area, such as Oxnard and Los Angeles,                          
            California.  Indeed, we find that aspect of Mr. Holden's analysis                          
            troubling.  MVN and MVS are located in an area adjacent to the                             
            city of Santa Barbara.  MVN and MVS are more than 90 miles away                            



            (...continued)                                                                             
                        Year 8      685,026                 652,898                                    
                        Year 9            –-                686,984                                    
                        Year 10     –-                      693,587                                    
                        Year 11     –-                      707,083                                    

            7     The discount rate is a rate of return on capital used to                             
            convert future payments, rental income, or receipts into a                                 
            present value.                                                                             





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