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competitor. Peterson Consulting attributed $603,855 of
petitioner's incremental profits to petitioner's improved
productivity from using SMMT. However, Peterson Consulting
excluded over 50 percent of the cost of the four-color press
acquired in 1989 in petitioner's sales-to-assets ratio. This
omission overstates petitioner's productivity and is a
significant error in the valuation. Moreover, there is evidence
in the record that petitioner was inefficient and disorganized as
compared with other printing companies.
Peterson Consulting also applied this inaccurate sales-to-
assets ratio to project petitioner's sales without the license,
further distorting the license's value. It reasoned that
petitioner would not have obtained financing for the press
without the license agreement. There is no factual basis to
support this conclusion. When petitioner applied for a bank loan
for the four-color press, it was told that it had to reduce the
amount of the royalties to qualify for a loan. In that regard,
without the payment of the royalties to DM, petitioner would have
had above-average profitability, which makes it reasonable to
conclude that it would have been able to obtain independent
financing. The financing from DM is attributable to their close
relationship and is not an asset transferred pursuant to the
license agreement.
In general, the methodology of petitioner's expert report
makes it unreliable for valuation in this case. Peterson
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