- 22 -
Virtually all of Mr. Ostrove’s factual conclusions upon
which he bases his opinion are either unsupported or in error, as
follows.
Mr. Ostrove’s computation of petitioner’s ROE for the 1979-
84, 1986-90, and 1994-97 taxable years is based upon the ratio of
taxable (pretax) income to equity, which contradicts principles
of corporate finance that require the use of after-tax income in
such computations. See Adams et al., Fundamentals of Business
Valuation (Part I) 4-21 (2000); Brealey & Myers, Principles of
Corporate Finance 828, 830 (7th ed. 2003). We have used after-
tax income in computing ROE. See B & D Founds., Inc. v.
Commissioner, T.C. Memo. 2001-262 (n.2 to table listing annual
ROE); LabelGraphics, Inc. v. Commissioner, supra (n.2 to table
listing annual ROE).
Mr. Ostrove observes that “it cannot be denied that [Mrs.
Harrison] is a highly qualified business person and is largely
responsible for the noteworthy success of her company.” As
discussed infra section II.C.4., it is clear from the trial
testimony that Mrs. Harrison has always played a secondary role
in the operation of petitioner’s trash hauling business and that
the primary roles were played, first, by Mr. Harrison and, later,
by Myron, James, and Ralph.
Mr. Ostrove also states that “Mrs. Harrison (and her
deceased husband) assumed not only the plethora of risks
associated with founding and developing a successful business
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011