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sales or net income and those companies’ compensation to their
executives, should hold equally true for taxpayer-corporation;
surveyed companies were many times the size of taxpayer and were
not reasonably comparable to taxpayer).
Nor has Mr. Matthews convinced us that an independent
investor would be satisfied with the 10.4-percent compounded
annual rate of return on petitioner’s common stock that Mr.
Matthews computed for petitioner’s 1992 through 1998 fiscal
years. Mr. Matthews’s written testimony is contained in two
reports, an initial report and a report made in rebuttal to the
testimony of respondent’s expert, Mr. Hakala (the rebuttal
report). The initial report contains no support for Mr.
Matthews’s conclusion beyond his claim that the 10.4-percent rate
of return “would be highly satisfactory to most equity
investors.” In the rebuttal report, Mr. Matthews compares
petitioner’s return on equity with 17 publicly traded broker-
dealers and finds the returns provided by petitioner to be
satisfactory to a hypothetical investor. He also uses a
financial tool, the capital asset pricing model, to determine the
return an investor would expect for an investment in petitioner’s
common stock. He determines that the expected return on
petitioner’s common stock is satisfactory by comparing that
return to the cost of equity determined under the capital asset
pricing model using data with respect to “beta” (a measure of the
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