- 21 -
that would have been incurred each year over this 16-year period-
-$3,226,680.25 ($51,626,884 divided by 16). Next, he selected a
13.2-percent discount rate based on the average annual rate of
return for large-cap stocks in the period from 1926 to 1998, as
described in Ibbotson Associates Stocks, Bonds, Bills &
Inflation, 1999 Yearbook (Ibbotson 1999). He then computed the
present value of the $3,226,680.25 annual tax liability
discounted over 16 years using a 13.2-percent interest rate to
arrive at a present value for the total capital gain tax
liability of $21,082,226. By reducing the $188,635,833 net asset
value by the $21,082,226 future tax liability, Mr. Shaked arrived
at a $167,553,607 value for CCC. Finally, Mr. Shaked concluded
that the undiscounted value for decedent’s 6.44-percent interest
in CCC was $10,789,164 in contrast to Mr. Frazier’s undiscounted
value of $8,823,062. This difference reflects numerically the
parties’ differing approaches to the amount of capital gain tax
that should be used to reduce the net asset value of CCC.
A hypothetical buyer of CCC is investing in a composite
portfolio to profit from income derived from dividends and/or
appreciation in value. A hypothetical buyer of CCC is, in most
respects, analogous to an investor/buyer of a mutual fund. The
buyer is investing in a securities mix and/or performance of the
fund and would be unable to liquidate the underlying securities.
That is especially true here where we consider a 6.44-percent
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011