- 33 -
be projected into the future as sustainable growth. Mr. Kramer
addressed this issue by adding 5 percent to Renier’s expected
future annual income prior to capitalization. We agree that this
method correctly accounts for the recent strength in Dubuque’s
retail economy, while excluding growth attributable to the area’s
1993 flood. We therefore conclude that the most accurate long-
term growth assumption for Renier is 4.15 percent. However, we
also believe it is appropriate to adopt Mr. Kramer’s methodology
of adding 5 percent to Renier’s expected future annual income to
account for the recent strength in Dubuque’s retail economy. In
further support of this conclusion, we note that Renier faced
stiff competition from a number of much larger chain retailers,
including K-Mart, Radio Shack, Sears, and Wal-Mart, putting in
doubt Renier’s ability to sustain a high sales growth rate after
the valuation date.
d. Conclusion: Income Valuation of Renier’s
Operating Assets
Based on the foregoing, we conclude that the appropriate
capitalization rate on the valuation date equaled 20.75 percent;
namely, Mr. Kramer’s discount rate of 24.9 percent, less an
estimated long-term growth rate of 4.15 percent. Furthermore, as
previously discussed, this capitalization rate should be applied
to 105 percent of Renier’s expected future annual income, or
$125,749. Dividing this amount by the capitalization rate, we
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011