Federal Home Loan Mortgage Corporation - Page 43

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               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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