- 38 - 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.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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