Discount Rate in Valuation of General Dynamics Shipyard


General Dynamics owns a shipyard, nearly three-quarters of which is located in Quincy, Massachusetts. In 1976 Quincy's Board of Assessors increased the property's assessment by approximately two-thirds. General Dynamics took exception to the Board's method of valuation, and the resulting litigation came before the Common-wealth's Superior Court. General Dynamics' position was that a proper procedure would base valuation upon the discounted value of expected net income from the yard, not upon replacement cost less depreciation, as the Board of Assessors had done.


In expert testimony, Analysis & Inference estimated the appropriate rate for discounting the shipyard's future net income. Key to deriving this estimate was the risk of the yard, determined according to accepted principles of contemporary finance theory.


The court found that General Dynamics’ proposed valuation method was far more accurate than the one used by Quincy's Board of Assessors, and General Dynamics won a $12.4 million abatement. Judge Zobel relied heavily upon Analysis & Inference as General Dynamic's statistical expert. On appeal, the Commonwealth's Supreme Judicial Court affirmed Judge Zobel's decision.