Terrene Investments, Ltd., Deerbrook Construction, Inc., Tax Matters Partner - Page 10




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          a weighted average that produced a value of $9,050 per acre.                
          Multiplying by the number of acres in the parcel at issue led to            
          an appraised value of $284,300.                                             
               Moritz also used the DCF approach.  He first developed a               
          hypothetical mining plan.  His plan used 50-foot setbacks to                
          create an adequate buffer between the pit and adjacent property,            
          and assumed a work area of approximately seven acres, to be set             
          on a portion of the property that could not, in his view, be                
          economically mined.  Moritz also believed that the pit walls                
          would have to remain at a 32-degree slope in order to be stable.            
          His mining plan calculated that with the setbacks, pit-wall                 
          slope, and operating area, the property contained 1.9 million               
          minable tons of aggregate.  He then took another 10% off to                 
          account for normal waste.  He estimated that the mine would                 
          produce 150,000 to 200,000 tons annually, and generate royalties            
          of $0.50/ton.  Using a 28% discount rate to compute present                 
          value, these estimates, assumptions, and conclusions taken                  
          together led him to a value of $326,000 for the mining interest.            
          He computed the residual value of the property to be $1,000 per             
          acre and discounted that to a total present residual value of               
          $9,900, which gave a final DCF value of $335,900.  Moritz finally           
          weighted the two values--two-thirds of the comparable sales value           
          and one-third of the DCF value--and came up with a final estimate           
          of $301,000.                                                                







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Last modified: November 10, 2007