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date of maturity, $436,46516 and $701,481,17 respectively. On the
basis of a 12.5-percent rate of return, Mr. Mitchell concluded
that the values of the promissory notes payable to decedent and
Hoffman Associates were $56,664 and $91,070, respectively, as of
the valuation date.
The estate relies on the report and testimony of its expert
appraiser, Benjamin Bishop (Mr. Bishop), to determine the value
of the Clubside promissory notes payable to decedent and Hoffman
Associates. Mr. Bishop relied on public markets for guidance to
determine an appropriate rate of return that a knowledgeable
investor would require for obligations similar in maturity and
quality to the promissory notes. Specifically, he relied on
Moody’s, Standard & Poor’s, and Fitch rating agencies to find
comparable debt securities. Mr. Bishop felt that the Clubside
notes were most comparable with the lowest-ranked securities,
which required an approximate 18-percent rate of return. Mr.
Bishop felt a lack of marketability discount was appropriate
because the comparable bonds he used could be sold at any time in
16The amount of principal at maturity, plus accrued interest
at a rate of 7.61 percent over 20 years.
17The amount of principal at maturity, plus accrued interest
at a rate of 7.61 percent over 20 years. Although Mr. Mitchell
arrived at a figure of $701,481 as the total payment at the date
of maturity, we note that application of the figures used results
in a value of $701,487. Application of the 12.5-percent rate of
return by Mr. Mitchell results in the same figure, $91,070, that
he determined as the value of this note.
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