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comparable-sales analysis--was no less flawed. The reason is
that the properties he used--his Sales #3 and #5--were properties
that, as we have already discussed, were not comparable to the
Hamblen Road property. Implicit in his conclusion that the
appropriate discount rate is 28% is that those sales’ purchase
prices reflect only their value to a mining operator. But as we
discussed above, Sale #5 was made at a price agreed to before
either side knew there were sand and gravel deposits beneath the
property, and Sale #3 was of a property contaminated by oil-and-
gas drilling. For the same reasons we rejected those properties
as comparable sales, we reject them as sources from which one can
derive a reasonable discount rate in this case.
On the other hand, there is some risk that an operator may
suffer interruptions that will affect the stability of the
royalty stream which the property’s owner would receive. An
addition of only 1% to the going prime rate hardly takes this
into account.
We thus also reject Ebanks’s analysis, if only in part. He
started his calculation of a discount rate using the prime rate
in November 1998. The cases seem fairly consistent in saying
that a court should instead begin with the appropriate risk-free
rate.13 We will start with a rate of 4.5%, which was the average
13 See Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S.
523, 537 (1983) (“the discount rate should be based on the rate
(continued...)
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