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instruments as of January 1, 1985. The market price of each of
petitioner’s existing debt instruments provides an accurate
indication of the price at which investors would exchange the
debt instruments. That price reflects the relationship between
the contract rate of interest on the debt and the market rate of
interest as of January 1, 1985. The market approach used by
petitioner captures the values of the debt instruments using the
prices at which willing buyers and sellers actually exchanged
these instruments as of the valuation date. We find that the sum
of the market discounts for petitioner’s debt instruments
provides a reasonable estimate of the present value of the
interest costs petitioner saved by paying below-market interest
rates on its outstanding debt instruments on January 1, 1985.
B. Respondent’s Position That Favorable Financing Has No
Value
Respondent primarily argues that petitioner failed to show
that the favorable financing intangibles had any value because:
(1) Petitioner did not show it expected to receive a stream of
income from the favorable financing intangible assets; (2)
petitioner did not prove that it could realize the value of the
favorable financing; (3) the favorable financing is a contra-
liability, not an asset; and (4) petitioner could realize the
value of favorable financing only by buying back its debt
instruments in the market, which would be impractical because it
would have to pay tax on the discharge of indebtedness.
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