Estate of Josephine T. Thompson, Deceased, Carl T. Holst-Knudsen and the Bank of New York, Executors - Page 26

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          comparable to TPC, and they valued TPC as an entity using the               
          capitalization of income method.                                            
               In capitalizing the income of TPC, however, the estate’s               
          experts significantly downplayed TPC’s long history of                      
          substantial income.  They misstated certain financial data,7 and            
          they opined that TPC’s business would be heavily and adversely              
          impacted by the Internet and by other advances in technology,               
          even though the estate’s experts demonstrated no experience with            
          the Internet- and technology-related companies.                             
               Under the capitalization of income valuation method, a                 
          business is valued based on a projected stream of “normalized” or           
          sustainable income, capitalized by a risk-adjusted rate of                  
          return.  The basic steps involved in the capitalization of income           
          method are as follows:                                                      

               (1) A capitalization rate for the business is selected;                
               (2) The business’s sustainable income is projected;                    
               (3) The capitalization rate is applied to the projected                
                    sustainable income for the business to calculate an               
                    operating value for the business; and                             
               (4) The amount or value of nonoperating assets owned by the            
                    business is added to the operating value of the                   
                    business.                                                         


               7  For example, in their original report, the estate’s                 
          experts stated that TPC’s growth in revenue for years subsequent            
          to 1994 was flat, contrary to the fact that TPC’s revenue reached           
          record levels in each of the years 1994-99.                                 





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