- 34 - limitations of the various classes of stock must be considered in making valuation determinations. See Estate of Newhouse v. Commissioner, 94 T.C. 193, 218 (1990); Estate of Anderson v. Commissioner, T.C. Memo. 1988-511. The factors to be considered are those that an informed buyer and an informed seller would take into account. See Hamm v. Commissioner, 325 F.2d 934, 940 (8th Cir. 1963), affg. T.C. Memo. 1961-347. Respondent relied on his appraiser, Mr. Mitchell, who valued WLI using a capitalized income analysis. The key components under Mr. Mitchell’s capitalized income analysis were: (1) The determination of a reasonable level for net profits or net cash- flow; (2) an appropriate cost of capital; and (3) a reasonable rate of growth for the profit stream. Mr. Mitchell relied on relevant financial information of WLI for 1991, 1992, and 1993, to determine the value of the WLI stock. Mr. Mitchell examined the revenues and expenses associated with WLI’s operations for the years 1991, 1992, and 1993, and, after averaging the 3 years, he concluded that a reasonable level for net profits or net cash-flow, before tax, was $630,000. In order to reach this conclusion, Mr. Mitchell adjusted WLI’s earnings for 1993 to reflect intercompany transactions with SCC, but he did not adjust WLI’s earnings for 1991 or 1992 to account for intercompany transactions with SCC and affiliates.Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 Next
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