- 15 -
rental business and the need to satisfy customers with new
equipment to rent. However, the reason Dunn Equipment was
willing to weather the low period was because of a belief, well
founded in our view, that the business would eventually rebound.
It follows, therefore, that earnings projections based on the low
period of the cycle would misrepresent the earnings value of the
company. For this reason, we believe the hypothetical buyer and
seller would give asset value considerable weight.
In allocating weight among the values determined under each
approach, we have considered the degree to which Dunn Equipment
was actively engaged in producing income, the nature of its
business, market conditions, the economic outlook, the company’s
history, its financial and business experiences and situation,
the size of the block of stock in issue, and the identity,
attitudes, and intentions of the remaining shareholders.3 See
Ward v. Commissioner, 87 T.C. 78, 102 (1986); Estate of Andrews
v. Commissioner, 79 T.C. at 945. Due to other factors relevant
to value such as low profitability, volatility of earnings, high
debt, limited customer base, and dependence upon one industry, we
3 Respondent argues that the plans and intentions of the
remaining shareholders and directors of Dunn Equipment should be
disregarded under the hypothetical sale test. This argument is
without merit. It is only the willing buyer and willing seller
that are hypothetical; otherwise, the process of valuation
considers actual conditions as they existed at the time of
valuation. See Estate of Newhouse v. Commissioner, 94 T.C. 193,
218 (1990).
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011