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The property here, to be precise, represents an illiquid
eight-year stream of royalty payments from a smallish parcel of
land. Part of the risk is the risk of inflation, but
inflationary risk is presumably reflected in the rate on the
Treasury notes. The parties left us with little in the way of
estimating noninflationary risk to the value of the income stream
(i.e., the probability that the income stream would be
interrupted). At a minimum, we think that we have to add in
another 3%, which was the spread between Treasury notes and
corporate bonds rated Baa back in November 1998. Federal Reserve
Statistical Release, H.15 - Historical Data,
http://www.federalreserve.gov/releases/h15/ data.htm. But we
also think that the risks associated with interruptions of
operations on the Hamblen Road property--interruptions like
flooding, malfunctioning equipment, small-operator bankruptcy,
etc.--and the risk of interruptions in getting a mine started in
the first place require an additional risk premium of 4%. The
final discount rate that we will use, then, is 11.5%, which (as a
reality check) is reasonably close to discount rates in other
cases involving royalty interests. See, e.g., Zuhone v.
Commissioner, 883 F.2d 1317, 1324-1325 (7th Cir. 1989) (7.5% over
Treasury rate for the year in question; hypothetical operation),
affg. T.C. Memo. 1988-142; E. Minerals Intl. v. United States, 39
Fed. Cl. 621, 631 n.12 (1997) (6.5% over Treasury rate; existing
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