- 47 -
extrapolations from those averages are usually inadequate bases
for an income-based analysis; an analyst should use such averages
only if she can explain why they are a reasonable proxy for
future expectations. See Pratt et al., supra at 240, 254. Given
the fluctuations in Demco’s net income, the difficulties being
experienced by Demco’s major customer groups, and the unsettled
economic conditions around the time of the gifts, it appears less
likely than usual that Demco’s past results could have served to
predict its future results. We also note that Ms. Walker’s
original report relied entirely on a market-based approach; her
revised report added an income-based approach only in response to
respondent’s criticism of her original report. For all these
reasons, we conclude that Ms. Walker’s income-based approach is
entitled to little weight.
Although Mr. Schroeder at least attempted to predict Demco’s
future income, his income-based analysis suffers from the same
flaws as Ms. Walker’s. Mr. Schroeder’s predictions, like Ms.
Walker’s extrapolations, were based to a great extent on Demco’s
average past performance. In addition, Mr. Schroeder did not
explain or justify very well either his assumptions about future
changes in Demco’s performance or his choice of discount rates.
We also note that although Ms. Walker had little criticism of Mr.
Schroeder’s guideline company approach–-or couched that criticism
in terms of reasonable professional differences--she identified
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