Johann T. and Johanna Hess - Page 25

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          We discuss these valuation methods in turn.                                 
               Net Asset Value Method                                                 
               Mr. Engstrom used the net asset value method25 as an asset-            
          based approach to his valuation of HII stock.  Mr. Engstrom                 
          assumed that the book value of HII’s assets and liabilities                 
          provided a reasonable approximation of fair market value.  He               
          determined that the fair market value of the stockholders’ equity           
          in HII was $18,640,000 (book value) on a controlling, marketable            
          basis as of November 15, 1995.                                              
               Both parties agree that the value Mr. Engstrom derived under           
          the net asset value method provides some indication of the fair             
          market value of HII stock on the gift date.  However, they                  
          disagree regarding the weight to be given that value.  Mr.                  
          Engstrom applied only 10-percent weight to his net asset value              
          analysis because he concluded that HII “is a very profitable                
          company, and it appears that the company had a significant amount           
          of goodwill as of November 15, 1995.”  Petitioners argue that Mr.           
          Engstrom’s net asset value analysis supports the value they                 
          reported on their gift tax returns, and they suggest that the               
          value derived under that analysis is entitled to more weight than           
          was given in Mr. Engstrom’s report.                                         



               25The net asset value method is based upon the net value of            
          a company’s assets less liabilities, after adjusting both to fair           
          market value using a going-concern assumption.                              




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