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and, in calculating the earnings base, Mr. Frazier accepted this
treatment. Respondent argues that the writeoff should be
eliminated for purposes of determining value because it
represents a one-time noncash charge. In general we agree with
respondent’s concern, although we have reached respondent’s
desired result through alternative means. In calculating changes
in net working capital, we incorporated the decrease in accounts
receivable that resulted from the bad debt writeoff. This caused
a decrease in the “changes in net working capital” figure and a
concomitant increase in cash-flow (and, ultimately, value).
Therefore, we need not eliminate the bad debt writeoff as an
expense.
The second challenge made by respondent involves Mr.
Frazier’s failure to recognize the benefits of certain embedded
tax credits when estimating the company’s annual income tax
liability. As of March 31, 1991, Dunn Equipment had an
investment tax credit carryforward of $767,0477 and an
alternative minimum tax credit carryforward of $90,971. Mr.
Frazier ascribed no effect to these tax credits and instead
applied a straight 34-percent tax rate to his earnings base in
computing the company’s expected annual income tax cost. On
brief, respondent argues that the 34-percent tax rate applied by
7 This figure represents the carryforward general business
credit for the year ending March 31, 1991, of $773,559, less the
credit used for such year of $6,512, leaving $767,047.
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