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holder could reinvest at a higher rate. Favorable put options
would shorten the estimated remaining useful life of favorable
financing intangible assets.
Respondent argues that petitioner has not established a
limited useful life for the favorable financing intangible assets
because petitioner’s calculations failed to consider the
volatility of the markets, which may eliminate the benefit of
these assets before the useful lives asserted by petitioner
expire. Respondent’s theory would seem to produce shorter useful
lives for the favorable financing intangible assets, which would
accelerate petitioner’s depreciation allowance.21 Instead,
petitioner used a more conservative estimate of the useful life
measured by the averaged weighted life.
We disagree with respondent that petitioner failed to take
market volatility into account when determining the useful lives
of its assets. Mr. Scribner explained that the market
incorporates all known information and expected information into
establishing the prevailing market rates. Mr. Scribner concluded
that “the market consensus establishes the current market
interest rate to be the best estimate of the prevailing interest
rate over the life of the investment.”
21 Respondent did not offer alternative useful life
calculations for petitioner’s favorable financing intangible
assets.
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