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specific risk premium adjusts the cost-of-equity capital for the
relative riskiness of the company compared to the guideline
companies in terms of either quantitative or qualitative factors.
Button opined that, based on aggressive sales projections,
operational problems, lack of diversity, inadequacy of management
resources, and lack of access to adequate capital, Schlegel UK
was more risky than the guideline companies that were used in the
valuation analysis. Thus, he added a 1-percent company-specific
risk premium to the cost-of-equity capital in coming to a cost-
of-equity capital of 28.77 percent. Button concluded that the
appropriate WACC was 24.75 percent.
Button forecasted Schlegel UK cash-flows based on
information obtained from Schlegel UK documents and discussions
with management in 1998 or 1999 about expectations existing
during the first half of 1989 regarding the period after the
valuation date. He prepared cash-flow projections for the
automotive division and the building materials division
separately, using the sales projections that were used by
Rachwal, E&Y, and Shapiro. He stated that the building products
forecast was based on unrealistically optimistic assumptions
about sales growth because he anticipated a decline in housing
starts and other sales, but he concluded that the construction of
an alternative sales forecast was not feasible. He viewed the
automobile division forecasts as reasonable, although management
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