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discounted at 14 percent.1 The PPM projections predicted that
the total up-front investment by Degree in the energy management
systems equipment would be $292,500 in 1981, which means that the
net present value of Degree's net receipts was a negative
$111,272 ($181,228 less $292,500).
Degree claimed that it placed the energy management systems
equipment in service during 1981 and that the equipment had a tax
basis and fair market value of $8,040,000. Grade's claimed share
of the basis in the equipment was $1,339,464 (16.6666 percent
times $8,040,000), and petitioner’s claimed share of that basis
was $93,800 (7 percent times $1,339,464). The equipment had a
true fair market value of no more than $354,000, and Degree's
claimed fair market value and tax basis of the equipment exceeded
the equipment's true fair market value by approximately 2,271
percent.
Petitioner never read the PPM, and she never discussed the
PPM with Mr. Mallin. Before participating in Degree, petitioner
had no experience in the development, operation, or marketing of
energy management systems, she had no knowledge of the components
and equipment constituting the energy management systems
equipment, and she had no knowledge of whether or not the energy
management systems equipment was installed in Milor Corporation.
1 The yield on long-term U.S. Treasury bonds was generally
14 percent in 1981.
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