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the risk-free rate of return,7 7.4-percent as the long-term
market risk premium,8 and 1.09 percent as G&J's beta
coefficient.9 Dr. Bajaj's cost of equity calculation was as
follows: 7.46 + (1.09 * 7.4) = 15.5 percent.
Dr. Bajaj determined G&J's cost of debt capital by looking
at G&J's real borrowing costs. In April 1991, G&J took on debt
in part to fund an expansion. It borrowed the needed funds at
8.25 percent, which was three-quarters of a percent below the
then prime rate of 9 percent.
D. Petitioners' Motion in Limine
Petitioners have moved to exclude Dr. Bajaj's testimony (the
motion). First, petitioners argue that Dr. Bajaj's opinion as to
the fair market value of a minority stock ownership interest in
G&J is inadmissible because it was derived from the application
of scientifically unreliable methodologies. See Daubert v.
Merrell Dow Pharm. Inc., 509 U.S. 579, 589 (1993)(under the
7 Dr. Bajaj explained that the yield to maturity on 30-year
Treasury securities was an appropriate measure of a risk-free
rate, which, according to information published by the Federal
Reserve was 7.46 percent as of July 31, 1992.
8 Dr. Bajaj explained that the 7.4-percent long-term market
risk premium was derived from historical data published by
Ibbotson Associates, Inc.
9 Dr. Bajaj defined beta as a measure of the tendency of a
security's return to move with the overall market's return. He
estimated G&J's beta from the betas for public firms operating in
the soft drink industry for which published figures were
available.
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