Phillip M. Welch and Dorothy Ellen Welch - Page 25

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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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