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Lipscomb testified convincingly that in his experience it
was customary practice in the timber industry to apply an after-
tax analysis.17 In his rebuttal report, Maloy includes as an
appendix portions of a treatise (Bullard, Basic Concepts in
Forest Valuation and Investment Analysis, sec. 6.2 (1998)) that
describe the use of an after-tax analysis for forestry
investments, whereby one converts all costs and revenues to an
after-tax basis and calculates all present values using an after-
tax discount rate. Accordingly, authorities relied upon by
respondent’s own expert appear to acknowledge that an after-tax
analysis, consistently utilizing after-tax income and after-tax
discount rates, may be appropriate.18
It is true, as Maloy indicates in his rebuttal report, that
an after-tax analysis requires an assumption as to whether the
hypothetical buyer is taxable and at what rate. It appears,
however, that in selecting his discount rate, Maloy himself has
17 Dilmore testified that in this case he had used a before-
tax analysis to determine the present value of the lease income
stream, but “you could do it either way.”
18 In his rebuttal report filed before trial, Maloy contends
that Lipscomb inconsistently used an 8-percent pretax discount
rate against after-tax income. Although Lipscomb’s expert report
is not explicit in this regard, it is clear from Lipscomb’s
testimony that his income capitalization method was an after-tax
method, entailing use of an after-tax discount rate.
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