Due Diligence - How to Investigate a Stock Message Board

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Strategies & Market Trends : Due Diligence - How to Investigate a Stock

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To: Henry Volquardsen who wrote (489)	5/26/1999 9:06:00 AM
From: John Sladek	Read Replies (2) of 752

Henry, you are playing in my territory Are you looking for any staff? ;-) I would suggest is that the more appropriate interest rate to use for the analysis is the company's current cost of borrowing. So in your example I would use 8%. This would bring the new borrowing in at par and give you a more accurate idea of fair value for the current bond I figured that you would catch a mistake somewhere. I wasn't exactly sure what a good choice for the cost of borrowing would be so I picked a number (6%) out of the air, just like the 8% rate on the new bond came out of the air. Your suggestion that both rates should be the same as the new bond rate makes a heck of a lot of sense. My publicist didn't like the "pulling numbers out of the air" excuse, and came up with this statement as to why I chose a different rate. Mr. Sladek chose a to use a rate different from the bond rate (8%) so that it was clear which rate was being used for calculating the interest payments and which rate was being used to determine the discounts. Ha! Seriously though, thanks for the input. Best Regards, John Sladek

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