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3,404 households could support only 208,325 square feet of retail
space. Because more than 300,000 square feet of commercial space
was available on the date of death, Mr. Kelley concluded that
there was an oversupply of commercial property.
By limiting his analysis to a 1.5-mile radius, Mr. Kelley
made an implicit assumption that people living outside the radius
will not shop within the radius. His approach takes into account
only 9,218 people, which does not even include the entire
population of Sherwood in 2000 (12,230). Mr. Kelley did not
offer a reasonable explanation for why he so limited his
analysis. The businesses within the area included a Home Depot,
grocery stores, banks, restaurants, a movie theater, and an ice-
skating arena. We find that it is unreasonable to assume that
only those people living within 1.5 miles will frequent such
businesses.
For the above-stated reasons, we reject Mr. Kelley’s use of
a discounted cashflow analysis.10
10 We recognize that discounted cashflow analysis can be an
appropriate valuation method. For example, discounted cashflow
analysis has been accepted as a method of valuing a company’s
stock by determining the present value of its future stream of
income. See, e.g., N. Trust Co. v. Commissioner, 87 T.C. 349,
378-380 (1986). Also, in Estate of Rodgers v. Commissioner, T.C.
Memo. 1999-129, discounted cashflow analysis was accepted to
determine the fair market value of multiple pieces of real
property. The properties were so numerous that they could not be
liquidated within a reasonable time without depressing the sales
prices, and thus a discounted cashflow analysis was appropriate
to take into account a market absorption rate. Id. This case is
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