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b. Favorable Financing Can Be Assigned a
Separate Value
As previously indicated, the fact that favorable financing
could not be transferred apart from a transfer of other assets
and liabilities does not prevent assigning it a separate value.
At trial, petitioner’s counsel developed the following
hypothetical situation while examining respondent’s expert, Dr.
Herbert Kaufman:14
Q: * * * The houses are both worth $300,000.
They are identical. They are next door to each other.
They both have a “for sale” sign in front of them. The
first house just says, “For sale, House, No Assumable
Debt.” The second house has “House for Sale Plus 1
Percent Mortgage Assumable as Part of the Purchase.”
* * * * * * *
Q: Do you believe the second seller is going to
receive more money at closing than the first seller?
A: Assuming that market interest rates are--
Q: They’re five.
A: Sure.
Q: So the second seller would receive more
money. Right?
A: I would think so.
14 Dr. Herbert M. Kaufman received his Ph.D. in economics
from the Pennsylvania State University. He is a professor of
finance at Arizona State University, W.P. Carey School of
Business. Dr. Kaufman’s fields of specialization are:
Investments; financial markets and institutions; monetary
economics; and applied econometrics. He provided a valuation
analysis of petitioner’s asserted favorable financing intangible
assets.
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