Howard Pontiac-GMC, Inc. - Page 16

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               In order to value the covenant, using the methodology                  
          adopted by petitioner, we would need to calculate the potential             
          lost business from competition by Mr. Markley and then, as                  
          respondent correctly points out, lower that number to reflect the           
          probability of Mr. Markley competing.  Mr. Howard testified to              
          the potential for lost sales.  Mr. Howard's testimony was                   
          consistent with Mr. Ray's testimony on this issue.  We realize              
          that Mr. Ray was not testifying specifically about Mr. Markley's            
          covenant; however, it adds to Mr. Howard's credibility that his             
          response was in line with industry norms in the Oklahoma City               
          area.  We note, however, that lost sales in the first year would            
          have to reflect the business reality that whatever form of                  
          competition Mr. Markley might engage in, it would take some time            
          to implement.  Using the lower end of the range, 20 percent, and            
          factoring a time lag in the first year, the potential for lost              
          business is approximately $300,000 the first year and $400,000              
          for each of the following 2 years.                                          
               The analysis does not stop at this point.  The potential               
          annual lost business needs to be reduced to reflect the                     
          probability of competition taking place during each of the 3                
          years of the covenant.  See International Multifoods Corp. v.               
          Commissioner, 108 T.C. 25, 47-48 (1997).  In evaluating the                 
          probability of competition, we take into account that the                   
          covenant was restricted to the sale of new Jeep-Eagle                       
          automobiles, which required a franchise from Chrysler.  The value           
          ascribed to the covenant must be further reduced to reflect its             



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