- 30 -
(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.
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011