Estate of Josephine T. Thompson, Deceased, Carl T. Holst-Knudsen and the Bank of New York, Executors - Page 37

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                                                    Present Value                     
                    Fiscal                          of Estimated                      
                    Year                              Cashflows                       
                    1998                            $  1,390,000                      
                    1999                            1,333,000                         
                    2000                            1,251,000                         
                    2001                            1,178,000                         
                    2002                              1,108,000                       
                    Subtotal                        $  6,260,000                      
                    Plus Liquidation Value            152,567,000                     
                    Valuation of TPC                $158,827,000                      

               In calculating the residual value for TPC to be added to his           
          net cashflow projections for 1998-2002, respondent’s expert’s               
          switch in his revised report from a terminal value to a                     
          liquidation value calculation appears to us to be an effort on              
          the part of respondent’s expert to keep the valuation for TPC               
          relatively high.12                                                          


               12  Generally, terminal value is used to compute an entity’s           
          residual value beyond the period for which an entity’s net                  
          cashflows are projected, whereas liquidation value generally is             
          used only when the entity being valued has plans to liquidate at            
          the end of the projection period.  Copeland, et al., Valuation              
          284 (3d ed. 2000) (providing that liquidation value should not be           
          used “unless liquidation is likely at the end of the forecast               
          period”).  Here, TPC’s management, as of May of 1998, had no                
          plans to liquidate TPC.  Using the correct $1.609 million in                
          deferred tax add-back, the calculation under respondent’s                   
          expert’s discounted cashflow method using a terminal value                  
          calculation for TPC’s 2002 residual value would have reflected a            
          May 2, 1998, fair market value for TPC of only $21.7 million as             
          follows:                                                                    
                                                    Present Value                     
                    Fiscal                          of Estimated                      
                    Year                              Cashflows                       
                    1998                            $ 1,390,000                       
                    1999                            1,333,000                         
                    2000                            1,251,000                         
                    2001                            1,178,000                         
                    2002                              1,108,000                       
                    Subtotal                        $ 6,260,000                       
                    Plus 2002 Terminal Value          15,415,372                      
                    Valuation of TPC                $21,675,372                       


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