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Our conclusion that Dr. Spiro improperly applied the
guideline company approach based upon Mondavi and Canandaigua
makes it unnecessary to address petitioner’s other criticisms of
Dr. Spiro’s application of that approach: The selection of
inappropriate financial ratios, the arbitrary adjustment of those
ratios, and the arbitrary nature of the weight given to the
result reached by Dr. Spiro under the market approach.
D. Conclusion
Dr. Spiro improperly applied the guideline company approach
in valuing the stock of Korbel.
V. Utilization of the Discounted Cashflow Method in Valuing the
Stock of Korbel
A. Introduction
This Court considers the discounted cashflow (DCF) method
employed by both experts to be an appropriate method for use in
valuing corporate stock. See, e.g., N. Trust Co. v.
Commissioner, 87 T.C. 349, 379 (1986). Moreover, where we have
rejected use of the market approach as unreliable, we have based
the value of a closely held corporation on the DCF approach
alone. See Estate of Jung v. Commissioner, 101 T.C. 412, 433
(1993). We, therefore, find that the DCF method utilized by both
experts in this case is an appropriate method for valuing the
stock of Korbel as of the valuation date.
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