- 25 -
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.
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011