Estate of James J. Renier, Deceased, Kent L. Renier and Dubuque Bank & Trust Company, Co-Executors - Page 28




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          Renier at 24.76 percent, quite close to Mr. Kramer’s estimate of            
          24.90 percent.  Mr. Sliwoski then reduced this required rate of             
          return by 6 percent to account for Renier’s estimated growth                
          after the valuation date.17  Mr. Sliwoski also believed that the            
          capitalization rate should reflect a “weighted average cost of              
          capital”; that is, a blending of the rate of return on equity               
          with the cost of debt incurred in a hypothetical purchase, which            
          rate he estimated would be 2 percent above prime, or 8.45                   
          percent, on the valuation date.  Mr. Sliwoski further computed an           
          after-tax cost of the debt by discounting it 38 percent.  Using             
          the assumption that a purchase of decedent’s interest would be              
          financed 65.5 percent with debt and 34.5 percent with equity, Mr.           
          Sliwoski computed the weighted average cost of capital as                   
          follows:                                                                    

                  Weighted Average Cost of Capital Per Mr. Sliwoski                   
                                       Before Tax                After Tax            
                        Percentage of  Cost of                    Cost of             
            Financing     Financing    Financing   Income Tax    Financing            
            Component     Component    Component   Adjustment    Component            
          Debt             65.5%       8.45%         62.0%        3.43%               
          Equity           34.5%       18.76%          NA         6.47%               
          Total                                                   9.90%               
                                                                    or                
                                                               approximately          
                                                                   10%                
          Thus, the effect of Mr. Sliwoski’s weighted average is to reduce            
          the capitalization rate from 18.76 percent (24.76 percent                   


               17 Mr. Kramer also believed that Renier’s estimated growth             
          rate should reduce its capitalization rate.                                 




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