- 21 -
Considering the foregoing, we calculate the earnings base of
$286,421 as follows:
Net income from operations $830,618
Less: Interest expense (493,263)
Less: Income taxes (114,700)
Plus: Depreciation 2,078,878
Less: Capital expenditures (2,066,057)
Plus: Proceeds from the sale of capital assets 551,825
Less: Net profits from the sale of equipment (453,139)
Plus: Net losses from the sale of equipment 3,212
Less: Changes in net working capital 149,200
Plus: Net changes in long-term debt 2(100,153)
Equals: Net cash-flow 286,421
1 According to Mr. Frazier’s report, average changes in net
working capital totaled -$49,200; subtracting that amount results
in the addition of $49,200 to net cash-flow.
2 Average net changes in long-term debt totaled -$100,153;
adding that amount results in the subtraction of $100,153 from
net cash-flow.
Dividing the corrected earnings base of $286,421 by the agreed
capitalization rate of 21.67 percent results in an earnings-based
value before discount of $1,321,740.
Respondent also presented additional challenges to
petitioner’s earnings value on brief, arguing that petitioner’s
expert erred in defining the earnings base by: (i) Failing to
eliminate a bad debt writeoff from its 1989 expenses of $468,000
for Texcrane Rentals, Inc. (Texcrane); and (ii) failing to
reflect the benefits of an investment tax credit carryover of
$767,047 and alternative minimum taxes paid totaling $90,971.
With respect to respondent’s first challenge, the Texcrane
bad debt writeoff was treated by Dunn Equipment as an expense
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