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Rail News Home Rail Industry Trends

2/12/2008



Rail News: Rail Industry Trends

STB seeks public comments on cost-of-equity calculation change


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The Surface Transportation Board (STB) plans to change the way it determines the cost-of-equity component of the rail industry's cost of capital. But before the agency does so, board members want to know what the public at large thinks about the change. The STB is accepting public comments until April 14.

Last month, the STB ruled it would begin using a multi-stage discounted cash flow (DCF) model to complement a capital asset pricing model when determining the cost-of-equity component of the rail industry's cost of capital. The board uses an annual cost-of-capital figure to evaluate the adequacy of individual railroad's revenue each year and as a tool during regulatory proceedings, such rate challenges and line abandonments.

Since 1982, the STB has employed a single-stage DCF method to determine the cost of equity. The board considers the multi-stage DCF to be a more "theoretically sound" model.


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