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asset-based value of the stock in question to some extent.12
Considering all the facts and circumstances, we think that a
reduction in the amount of 5 percent of the built-in gains is
appropriate.
In light of the foregoing, we find that the net asset value
of Dunn Equipment is equal to the asset value calculated under
Mr. Frazier’s report ($7,519,439) plus the value of the townhouse
($35,000) and the amounts recorded as prepaid expenses ($52,643)
and prepaid interest ($671,260), reduced by 5 percent of the
amount of the built in gain of $7,109,000 ($355,450), resulting
in a prediscount asset-based value for the entire company of
$7,922,892.
C. Combining the Values
As previously discussed, we have decided that the fair
market value of decedent’s stockholdings is best approximated by
an allocation of 65 percent to the asset-based value of
$7,922,892 and 35 percent to the earnings-based value of
$1,321,740, resulting in an overall value of $5,612,489. Based
upon these findings, the fair market value of decedent’s 62.96-
12 The effect of any inherent gain on the hypothetical buyer
who wishes merely to continue operating the company has been
taken into account in the earnings-based value discussed above,
because the company sold equipment as part of its ongoing
operations. Thus, we apply the reduction to the asset-based
value only, rather than as part of an overall discount to the
asset- and earnings-based values.
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