Estate of Beatrice Ellen Jones Dunn - Page 17




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          the total returns of Dunn Equipment, i.e., net cash-flow to                 
          equity, not just net income.  Mr. Frazier contended that he could           
          not capitalize net cash-flow because the net cash-flow was                  
          negative for the period of fiscal years 1987 through 1991 and               
          there was no expectation of net cash-flow in the future.  We                
          disagree.  Although cash-flow was negative in 1990 and 1991, the            
          average over 4 years was not, as will be seen below.5  Thus, we             
          apply the capitalization rate to net cash-flow to equity rather             
          than net income.                                                            
               Net income and net cash-flow to equity are calculated in               
          similar ways.  Both begin with gross profit from operations, add            
          similar items of income from other sources, and subtract similar            
          expense items.  There are several important distinctions,                   
          however, evident in a comparison of the calculations of Mr.                 
          Frazier and Ms. Eggleston.  In his calculation of net income, Mr.           
          Frazier relied on the company’s income statements for fiscal                
          years 1987 through 1991 and computed average net income, before             
          reduction for interest and taxes, of $766,259.  He subtracted               
          projected amounts for interest of $500,000 and taxes of $90,528,            
          resulting in an earnings base of $175,731.  He divided this                 
          figure by the capitalization rate of 21.67 percent, to arrive at            




               5 As explained below, we use 4-year averages rather than 5-            
          year averages as used by Mr. Frazier and Ms. Eggleston.                     





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