ABC Rentals of San Antonio, Inc. - Page 25

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               A.   Income Forecast                                                   
               Respondent contends that in applying the income forecast               
          method of depreciation, petitioners failed to forecast accurately           
          the income to be received from the assets being depreciated.  In            
          fact, respondent contends that the income to be received from               
          equipment placed in service was never forecast.  Rather, 300                
          percent of the asset's cost was always used as the denominator of           
          the fraction.  While the latter may be true, the parties                    
          stipulated that petitioners estimated that the total gross rental           
          anticipated to be received on each rental unit would be 300                 
          percent of its initial cost, which was consistent with the                  
          practice in the rent-to-own industry.                                       
               Each Entity's 1991 and 1992 experience data indicates that,            
          per category of rental units, the actual average total amount of            
          gross rental the Entities received under all rental contracts for           
          a rental unit in such category was the product of the initial               
          cost to the Entity of such rental unit times the following                  
          delineated integer:                                                         
          Category                                 Integer                            
                                        Guaranteed          ABC                       
          Appliances                         3.1            3.2                       
          Televisions                        2.8            3.0                       
          Furniture                          2.9            2.6                       
          Stereos                            2.7            3.0                       
          Video cassette recorders           2.9            3.4                       

          An integer of 3.0 represents a gross return of 300 percent of               
          initial cost.                                                               


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Last modified: May 25, 2011