Back to Table of Contents Happenings at Our Firm With the new year, we are pleased to welcome another professional to our organization, Anthony Frendo. Anthony has an MBA in Finance and comes to us from an investment banking firm. We look forward to his contributions to our firm. I just read an appraisal report by another expert that used a capitalization rate of 7 percent for a fairly small business. At face value, a 7 percent capitalization rate for any business seems awfully low.
Most small businesses are risky for many reasons, implying a higher required rate of return.
Most finance textbooks that discuss long term growth indicate that this rate should rarely be more than the rate of inflation and population growth. Q. My attorney tells me that if I set up a Family Limited Partnership, I can expect big discounts for minority interest and lack of marketability. The facts and circumstances of each situation should be considered by the appraiser in reaching conclusions about these discounts. Factors that will be considered, at a minimum, include the restrictions in the agreement, the type of investments held by the partnership, the size of the block being valued and the empirical data that can be located to support these discounts. Unsupported discounts will most likely be disallowed by the Internal Revenue Service and penalties may be assessed if the discounts result in a large understatement of any taxes that may be owed.