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Rail News: Federal Legislation & Regulation

Rail industry's cost of capital rose in 2011, STB says


Yesterday, the Surface Transportation Board (STB) announced it calculated the rail industry's after-tax cost of capital for 2011 at 11.57 percent compared with 11.03 percent in 2010 and 10.43 percent in 2009.

Each year, the board calculates the industry's cost of capital, which represents the STB's estimate of the average rate of return needed to persuade investors to provide capital to the freight-rail industry.

"The board uses the cost of capital figure in evaluating the adequacy of individual railroads' revenues each year," STB members said in a prepared statement, adding that the board also uses the figure when determining the reasonableness of a challenged rail rate, considering a rail line abandonment proposal or valuing a particular railroad's operation.

The STB also determined that, in 2011, the cost of railroad long-term debt was 3.97 percent; the cost of common equity was 13.57 percent; and railroad's capital structure mix was 20.83 percent for long-term debt and 79.17 percent for common equity.