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Rail News: Rail Industry Trends
9/29/2009
Rail News: Rail Industry Trends
STB calculates rail industry's cost of capital in '08
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Last week, the Surface Transportation Board (STB) announced it has calculated the rail industry's cost of capital for 2008.
The board determined the industry's after-tax cost of capital was 11.75 percent compared with 11.33 percent in 2007. The STB uses the cost-of-capital figure when evaluating the adequacy of individual railroad’s revenues each year. The calculation also is used to help determine the reasonableness of a challenged rail rate, consider a line abandonment proposal or place a value on a particular railroad’s operation.
This year, the STB estimated the cost-of-equity component of the industry’s capital cost using an average of a Capital Asset Pricing Model approach and a multi-stage Discounted Cash Flow model.
The board determined the industry's after-tax cost of capital was 11.75 percent compared with 11.33 percent in 2007. The STB uses the cost-of-capital figure when evaluating the adequacy of individual railroad’s revenues each year. The calculation also is used to help determine the reasonableness of a challenged rail rate, consider a line abandonment proposal or place a value on a particular railroad’s operation.
This year, the STB estimated the cost-of-equity component of the industry’s capital cost using an average of a Capital Asset Pricing Model approach and a multi-stage Discounted Cash Flow model.
