Estate of Emily F. Klauss - Page 7

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               The experts each used the income capitalization3 and market              
          or public guideline company4 methods to estimate the value of                 
          decedent’s Green Light stock.  Johnson and Fuller used the same               
          guideline companies:  Scotts Co. (Scotts), American Vanguard                  
          Corp. (American Vanguard), Lesco, Inc. (Lesco), and Vigoro Corp.              
          (Vigoro).  Johnson and Fuller primarily disagree as to:  (1)                  
          Whether to apply a small-stock premium and (2) whether to adjust              
          the multiple for the growth rates of Green Light and the                      
          guideline companies.                                                          
          B.   Stock Value Before Considering Discounts                                 
               1.   The Small-Stock Premium                                             
               Johnson applied a small-stock premium of 5.2 percent in                  
          calculating the discount rate5 he used to approximate the return              
          required by investors in the smallest quintile of the public                  
          stock market.  Respondent contends that Johnson was incorrect in              
          applying a small-stock premium.  We disagree.                                 

               3  The income capitalization method is used to estimate the              
          fair market value of income-producing property by considering the             
          present value of the future stream of income to be produced by                
          that property.  See Estate of Bennett v. Commissioner, T.C. Memo.             
          1989-681, affd. 935 F.2d 1285 (4th Cir. 1991).                                
               4  The market or public guideline company method compares                
          the company being valued with similar, publicly traded (i.e.,                 
          "guideline") companies.                                                       
               5  The discount rate is the total of the risk-free rate, the             
          equity risk premium, the small-stock premium, and the specific                
          risk premium.                                                                 

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