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that petitioner would receive 15 percent of the gross
receipts of the business for the first 4 years and 40
percent of the gross receipts thereafter. He computed the
present value of the amount to be realized by petitioner
using a discount rate of 12 percent.
Mr. Meade's analysis assumes that petitioner could
expect to lose clients listed on the seller's client list
ratably over the useful life of the client list and further
assumes that petitioner's gross sales would be reduced pro
rata. For example, if the useful life of the client list
were assumed to be 5 years, then Mr. Meade assumed that
petitioner would lose 20 percent of the clients and suffer
a reduction of gross revenues of 20 percent in the first
year, 40 percent in the second year, 60 percent in the
third year, 80 percent in the fourth year, and 100 percent
in the fifth year.
Mr. Meade made three computations of the present value
of the net amount to be realized by petitioner. The
computations assumed that the useful lives of the client
list were 5 years, 10 years, and 15 years, respectively.
An expanded version of Mr. Meade's computations (in which
all columns other than the loss factor and discount factor
are expressed in dollars) is as follows:
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