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average. Because Mr. Kramer’s approach is consistent with
Renier’s actual income tax liabilities over the base period, we
believe it is more accurate. We therefore adopt his method of
using after-tax net income and taking account of the income tax
effect of normalizing adjustments at Renier’s historic average
rate of 34 percent.
g. Conclusion
Based on the foregoing, we conclude that the following
normalizing adjustments should be made to Renier’s reported net
income after taxes for the base period:
Adjustments to Base Period Net Income
(negative amounts in parentheses)
Excess related-party compensation $228,453
Interest generated by Renier’s excess working (104,584)
capital
Depreciation1 35,012
Property taxes1 1,782
Automotive expenses1 6,650
Capital loss1 9,219
Rental income1 (6,000)
Total adjustments before tax 170,532
Tax on adjustments (at blended Federal and State (57,981)
rate of 34 percent)
Total adjustments after tax 112,551
1 The experts agreed to the normalizing adjustment amounts with
respect to depreciation, property taxes, automotive expenses,
capital loss, and rental income.
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