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estimated return on equity less 6-percent growth rate in
earnings) to 10 percent.
We are not persuaded by Mr. Sliwoski’s approach. This Court
has often rejected the use of a weighted average cost of capital
in valuing an equity interest in a closely held corporation.
See, e.g., Estate of Hall v. Commissioner, 92 T.C. 312, 341
(1989); Estate of Maggos v. Commissioner, T.C. Memo. 2000-129;
Estate of Hendrickson v. Commissioner, T.C. Memo. 1999-278;
Furman v. Commissioner, T.C. Memo. 1998-157. This approach has
also been criticized in valuation commentary. See Bogdanski,
Federal Tax Valuation, par. 3.05[5][b] (1996 & Supp. 1999), and
authorities therein cited. Although respondent cites Gross v.
Commissioner, T.C. Memo. 1999-254, as support for the use of this
method, we note that in that case, the corporation’s actual
borrowing costs were incorporated in the formula. Here, Mr.
Sliwoski has relied entirely on a set of assumptions about the
cost and amount of debt that a hypothetical purchaser of Renier
would incur. The estate argues, and presented evidence, that
these assumptions were unrealistic. We agree. A local banker
testified that financial institutions in the area would not have
extended an acquisition loan with respect to a retail business
like Renier at anywhere near the amount postulated by Mr.
Sliwoski and, further, would have required personal guaranties.
Such guaranties raise the effective cost of borrowing. See Pratt
et al., Valuing Small Businesses and Professional Practices 220
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