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M <br />11 determine the total dollar amount of retu_n on investment <br />2 allowed to the shareholders. <br />3 <br />4 Q. Have you pre;Dared a schedule which shows the cost of capital <br />5 for this rate case? <br />6 A. Yes. <br />7 <br />8 Q. Would you please provide us with an explanation of this <br />9 calculation. <br />10 A. Yes. If you will turn to attachment 3 of Exhibit "2",,you will <br />,T %C-G�'_ : ....a.Y_�.--`-l�•o-Ci <br />11 see a calculation of the cost of capital,vhichAwould provide a <br />r <br />12 fair rate of return on the investment used .�i:d useful in rendering <br />13 service to the customers. This calculaticn is a computation <br />14 of the weighted cost of capital based on tle actual capital <br />15 structure of General Development Utilities at December 31, 1978. <br />16 The weighted cost takes the composition of the capital structure <br />17 into account where a simple arithmetic average of the cost <br />18 components would not. Equity capital composes 98% of the <br />19 capital structure and has a computed cost rate of 14.82%. Debt <br />20 capital is represented by customer deposits at a cost rate of <br />21 6%. The equity cost of capital computation is contained on page <br />22 2 of attachment 3. This shows the weighted cost of capital <br />23 computation of GDV, Inc. as of December 31, 1978. The various <br />24 equity and debt capital components are contained on that <br />25 exhibit which results in an overall weighted cost of 14.82%. <br />26 The cost rate for the equity capital component of that computation <br />27 is based on the most recent debt offering of GDV, Inc. of <br />-7- <br />DEC 111979 <br />w <br />POOK 4 fAcE 268 <br />