Estimation of the cost of capital for subsidiaries of public utility holding companies

Thesis/Dissertation · Sat Jan 01 04:00:00 EST 1983

OSTI ID:6218873

Shome, D K

The conventional cost of capital models like the Discounted Cash Flow (DCF) model and the Capital Asset Pricing Model (CAPM) are expressed in terms of the prices of financial assets. Their implementation, therefore, depends on the availability of capital market data. This limits their direct application to the estimation of capital costs of firms whose stocks and bonds are traded in the capital market. However, to make value-maximizing investment decisions and fair regulatory decisions there is often the need to estimate the cost of capital of a firm's projects, divisions and subsidiaries, entities that are not traded in the capital markets. In this study the author develops and critically evaluates alternative methodologies for estimating the capital costs of subsidiary firms. He applies methodologies to estimate the cost of equity of electric utility subsidiaries, telephone subsidiaries, and Western Electric Company, an unregulated subsidiary of a regulated parent company, AT and T. He follows two basic approaches to estimate the subsidiary capital costs.

• OSTI ID: 6218873
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
296000 -- Energy Planning & Policy-- Electric Power
CAPITAL
COST
ECONOMETRICS
ECONOMICS
ELECTRIC UTILITIES
PUBLIC UTILITIES