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Daley is president of Daley Marketing Corp. (DMC), a company
that prepares and publishes market and residual value reports for
computer equipment. DMC collects and maintains a data base of
information concerning the market and residual values of computer
equipment. The sources of the data are brokers, dealers, and
lessors, and the reports have been published quarterly since
1985. DMC reports are used as a reference by many companies,
including Fortune 500 companies, to ascertain computer equipment
values. Petitioner subscribed to these reports during 1995.
Daley also considered the three traditional approaches
(i.e., sales, income, and cost) to valuing equipment and selected
the market approach because of the availability of actual sales
and offering prices for the same or similar equipment. He
reasoned that an actual market for equipment presents a more
direct and reliable indicator of fair market value.
The methodology used to convert raw equipment information
obtained from brokers, dealers, and lessors into DMC residual
value reports includes the adding of a gross margin to arrive at
an “end user” fair market value. In addition, the forecasting of
future value includes the development of a depreciation curve to
adjust for new technology, supply and demand, continued viability
of the manufacturer, competition, and other market factors. On
the basis of that methodology, Daley’s judgment is that the
equipment we consider here reaches a salvage value of 2 percent
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