- 43 -
We must decide the value of petitioner’s favorable financing
intangible assets. Because income spread measures equity and not
the value of individual assets, we find that the value of
petitioner’s favorable financing intangible assets is not limited
to the income spread.
D. Respondent’s Argument That Taxes Reduce the Value of
Favorable Financing
Assuming that petitioner’s favorable financing intangible
assets do have value, respondent argues that petitioner’s
calculations over-valued these assets because its method failed
to incorporate the effect of taxes. In his rebuttal report, Dr.
Hakala explained that “the reduction in the value of the
liability would be partially offset by a deferred tax liability.”
Dr. Hakala calculated value by reducing the value of the
intangible assets for income taxes and increasing the value by
the tax shield.18 After incorporating the tax effect, Dr. Hakala
prepared a summary analysis of the favorable financing intangible
assets using Professor Schaefer’s market prices as follows:
Debt Corrected Value
G-15 $6,977,205
G-16 11,448,352
G-17 30,735,708
F-8 296,491
F-11 67,179,640
18 The reduction of value for income taxes reflects the
present value of cashflows on an after-tax basis. The tax shield
is the amortized tax benefit associated with creating an
intangible asset.
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