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stock should be valued on the basis of the adjusted book value of
the corporation’s net assets. In determining the adjusted value
of the motels (which make up almost all the assets of C&L
Bailey), they have both used, as a starting point, the Ohrmund
appraisal report’s valuation of the California motel and have
both adopted the original Biles report’s appraisal value of the
Arkansas motel. They agree that a 20-percent minority interest
discount is appropriate and that some additional marketability
discount is appropriate.
After concessions by respondent,3 the parties and their
experts disagree primarily about these three issues: (1) The
value of the California motel at decedent’s death, and in
particular, the effect of decedent’s individual one-half
ownership interest in parcel 2 on the value of his 50 shares of
C&L Bailey stock; (2) whether a $145,000 shareholder liability
reflected on C&L Bailey’s yearend 1995 corporate books
represented a valid debt that should be included as a negative
item in determining C&L Bailey’s net assets; and (3) the total
discount that should be allowed in valuing decedent’s 50 shares
of C&L Bailey stock. We address each of these issues in turn.
3 Respondent concedes that C&L Bailey’s assets should
exclude certain assets reported on the corporation’s yearend 1995
balance sheets; namely, a $16,316 corporate loan to stockholders
and a $19,000 franchise fee asset.
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