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corporate distributions from SCC and WLI, was intended to provide
for decedent in her later years because at sometime in the future
the corporations presumably “would have gone public”. On the
basis of the evidence in the record, we believe WLI had little
possibility of going public as of the valuation date. See Estate
of Klauss v. Commissioner, supra.
In his report and testimony, Mr. Mitchell stated that a beta
of 1.0 was chosen as an estimate because no reliable, comparable
companies could be found. In his analysis, Mr. Mitchell
augmented the market risk premium to account for investment in a
small company stock. Mr. Mitchell testified that such an
increased risk premium is the same as applying a beta of 1.74, or
a beta indicating a higher level of risk than market average, and
that the risk premium was intended to compensate for the
inability to estimate the beta of WLI.33 Mr. Mitchell’s report
states that 5.3 percent is equivalent to the premium for
investing in small company stocks as calculated by Ibbotson
Associates, but Mr. Mitchell did not explain why such a figure is
appropriate for WLI specifically. Mr. Mitchell assumed that a
beta of 1.0 was an appropriate estimate to use in valuing the WLI
stock under CAPM because he could not find any comparable
publicly traded stocks. As we noted earlier, the failure to
33Alternatively, Mr. Mitchell noted that the 5.3-percent
risk premium could be viewed as increasing the market risk
premium to 12.5 percent.
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