-76-
II. Present Value Formulae and Discount Rate of Four Percent
A. Overview
In Trompeter I, we decided the applicable fair market value
of the series A preferred stock includable in the taxable estate.
We detailed our valuation methodology but did not identify with
specificity the present value formulae which were a part thereof.
Nor did we state with specificity the reasons behind our use of a
4-percent discount rate. The Court of Appeals for the Ninth
Circuit remanded this case to us to specify that formulae and to
document the reasons for using the 4-percent rate.
B. Present Value Formulae
1. Redemption Value of Series A Preferred Stock
The certificate of designation underlying the series A
preferred stock (certificate of designation)47 required that
Sterling redeem 1,000 shares of that stock on each December 31,
1993 through 1995. For each of those dates, we calculated in
Trompeter I the amount of the redemption payment payable under
the certificate of designation for the decedent’s series A
preferred stock using the following formula: P x (1 + i/n)y.
In this context, “P” equals the 511.161 shares of the decedent’s
series A preferred stock required to be redeemed on December 31,
47 In Trompeter I, we referred to the certificate of
designation as a “purchase agreement”. In that we now broaden
our findings of fact to address the specific attributes of that
stock, and not simply to address the fact that the stock was
redeemed, we herein refer to that document by its given title.
Page: Previous 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 NextLast modified: May 25, 2011