Estate of James J. Renier, Deceased, Kent L. Renier and Dubuque Bank & Trust Company, Co-Executors - Page 30




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          (3d ed. 1998) (“it seems reasonable to recognize a premium of               
          upwards of three percentage points to the face value interest               
          rate if personal guarantees are required.”).  We do not have                
          confidence that Mr. Sliwoski’s attempt to estimate a weighted               
          cost of capital is reliable, even if we were satisfied that it              
          represents an appropriate approach for valuing an equity                    
          interest.  Consequently, we reject the capitalization rate                  
          proposed by Mr. Sliwoski and conclude instead that the                      
          appropriate capitalization rate is one based upon a return to               
          equity alone, as proposed by Mr. Kramer.                                    
                           b. Computation of Capitalization Rate Based on             
                           Equity Return                                              
               As previously noted, Mr. Sliwoski and Mr. Kramer largely               
          agreed on the rate of return on equity that a purchaser of Renier           
          would require.  Mr. Sliwoski concluded that an equity investor              
          would require a 24.76-percent rate of return, while Mr. Kramer              
          concluded that an equity investor would require a 24.90-percent             
          return.  The discrepancy between the two figures can be                     
          attributed to the risk-free rate of return employed by each                 
          expert.18  Mr. Sliwoski chose as his risk-free rate the 7.26-               
          percent return from 30-year U.S. Treasury bonds on the valuation            
          date, while Mr. Kramer utilized the 7.40-percent rate of return             
          on 20-year U.S. Treasury bonds.  This 0.14-percent rate                     


               18 While the experts’ other assumptions also differ, these             
          differences are exactly offsetting.                                         




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