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Ms. Maiden combined the safe rate of return from the 10-year U.S.
Treasury bond (9.17 percent and 8.47 percent on the two valuation
dates) and the equity rate expected by land and real estate
developers (between 15 and 30 percent). Believing that the risk
and lack of liquidity inherent in the time-share industry increases
the discount rate, Ms. Maiden selected the higher end of the range.
Use of the 25-percent discount rate resulted in Powhatan
Associates’ inventory of time-share intervals and the land yet to
be developed having a fair market value of $28,732,000 as of
February 16, 1989, and $28,402,000 as of February 15, 1990.
Respondent’s experts adjusted (increased) Powhatan Associates’
yearend audited balance sheet to reflect the fair market values of
the inventory and land. Using the first-in first-out (FIFO) method
of inventory, they determined the division between inventory and
land fair market values to be as follows:
2/16/89 Inventory on hand–-1,949 intervals
(Rounded)
Number Net Value Discounted Value (25%)
Sales (projected) 1,800 $3,381 $6,085,498
Remaining inventory 149 2,705 403,045
Value allocated to
inventory of
intervals 1,949 6,488,543
Total FMV 28,732,000
Value allocated
to land 22,243,457
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