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rate of technological changes was accelerating.” He did not
shorten the useful life; instead, he reduced the value by 10
percent for years 1 to 8 and a lesser amount for years 9 and 10.
Petitioners’ experts assert that respondent’s experts failed
to take into account the “foot print” value when estimating the
residual value of the equipment. The “foot print” value is the
value that accrues to a computer that is on lease. It includes the
ability to upgrade. Significant profits can be made from upgrades.
The record shows, however, that RD Leasing did not have the benefit
of the foot print. Rather, Comdisco had the right to that benefit.
All the experts opined that if the residual value estimates of
MAC, M&S, and ARI were valid, then the lease would appear to have
economic substance before taxes. However, we find that the
estimated values provided by petitioners’ experts are not reliable
as estimates of residual values of the equipment. Those estimates
inflate the residual values by including the “foot print” value and
ignoring predictable market events that affected the values
negatively. In sum, we do not accept the analyses and conclusions
of petitioners’ experts as to residual values.
Petitioners’ experts assert that residual values for January
1994, as set forth in the October 1992 DMC Residual Value Report,
were extremely low. They assert that the DMC forecasts undervalued
the residual values of the IBM 9021 models by up to 186 percent and
the IBM 9121 models by up to 13 percent. In our opinion, the
predictions of the earlier DMC Residual Value Report would have
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