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Bonds, Bills & Inflation Yearbook for the years 1926-
97); and
(4) 12 percent primarily to reflect risks to TPC relating
to the Internet and to technology and to the loss of
advertising revenue that might be related thereto,
including perceived risks in TPC’s management
structure.
The 30.5-percent capitalization rate used by the estate’s experts
in the valuation of TPC stock is summarized below:
Risk Factors Percentage
Risk-Free Rate of Return 6.0
Corporate Equity Risk 7.8
Small Stock Risk 4.7
Internet & Management Risk 12.0
Capitalization Rate 30.5
In estimating TPC’s sustainable annual net income against
which to apply the above capitalization rate, the experts for the
estate adjusted TPC’s historical income statements for 1993-97 as
follows:
(1) Based on projections of TPC management, $10 million per
year was subtracted from TPC’s pretax income to reflect
projected additional expenditures to maintain and to
further TPC’s presence on the Internet, and to develop
additional technology-related projects; and
(2) Because TPC purportedly depreciated its fixed assets at
a slower rate than the assets’ actual rate of economic
depreciation, the experts for the estate subtracted an
amount to reflect the cost of additional economic
depreciation to fixed assets not booked each year by
TPC.
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