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Rail News: Rail Industry Trends

Rail industry's 2002 cost of capital less than 2001, STB says


On June 19, Surface Transportation Board released its annual determination of the railroad industry's cost of capital.

The board calculated the industry's 2002 composite after-tax cost of capital at 9.8 percent based on a cost of debt of 6.0 percent; cost of common-equity capital of 12.6 percent; cost of preferred-equity capital of 6.3 percent; and a capital structure mix of 41.2 percent debt, 56.7 percent common equity and 2.1 percent preferred-equity capital.

Last year, STB determined that the industry's 2001 cost of capital was 10.2 percent.

The board uses the cost-of-capital calculation when evaluating railroad revenues each year under procedures mandated by the Railroad Revitalization and Regulatory Reform Act of 1976.

Using Association of American Railroads data, STB determines the overall cost of capital based on Class Is meeting certain criteria developed in "Railroad Cost of Capital — 1984." (Burlington Northern Santa Fe, CSX Corp., Norfolk Southern Corp. and Union Pacific Corp. meet the criteria.)

Contact Progressive Railroading editorial staff.

More News from 6/19/2003