- 39 - calculate beta is a significant shortcoming in the use of the CAPM to value a closely held corporation. See Furman v. Commissioner, supra. Mr. Mitchell did not provide support for the amount of the additional risk premium, other than citing the source of the amount used, and he simply assumed a beta equal to market risk. In the instant case, respondent has failed to provide the evidence necessary for us to determine whether use of CAPM was appropriate, and whether the figures used in his calculations were reliable. See, e.g., Estate of Klauss v. Commissioner, supra; Estate of Maggos v. Commissioner, supra; Estate of Hendrickson v. Commissioner, supra; Furman v. Commissioner, supra. Respondent’s valuation determination was also unclear in another aspect. Mr. Mitchell subtracted intercompany profits only for 1993 when determining WLI’s earnings.34 Mr. Mitchell stated that he was being conservative with respect to the net earnings of WLI for 1993 and that is why he subtracted the intercompany profits. Mr. Mitchell explained that it was appropriate to subtract the intercompany profits for 1993 because, for financial reporting purposes, the activities of WLI were combined with other entities having common ownership while 34Mr. Mitchell testified that he did not know for a fact that the approximately $250,000 in intercompany profits should be subtracted from WLI’s earnings but that he went ahead and did it to be conservative.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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