# Use of a Multi-Stage Discontinued Cash Flow Model in Determining the Railroad Industry's Cost of Capital
**AGENCY:**
Surface Transportation Board, DOT.
**ACTION:**
Notice of Final Decision.
**SUMMARY:**
By a decision served on January 28, 2009, the Board modified its methodology for determining the cost of capital for the railroad industry by adopting the average of the estimates produced by its Capital Asset Pricing Model (CAPM) with the Morningstar/Ibbotson multi-stage Discontinued Cash Flow (DCF) model to estimate the railroad industry's cost of equity.
**DATES:**
This action is effective on January 28, 2009.
**FOR FURTHER INFORMATION CONTACT:**
Timothy J. Strafford, (202) 245-0356. [Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at 1-800-877-8339.]
**SUPPLEMENTARY INFORMATION:**
The Board has been thoroughly reviewing its regulatory processes for determining the railroad industry's cost of capital. The overall cost of capital is determined through the use of two figures: The cost of debt and the cost of equity. The cost of debt is readily available and observable; however, the cost of equity is not and must be estimated using a finance model. The Board determined in a decision served on January 28, 2009, the combination of finance models that it found best depicts the cost of equity, and thereby the cost of capital. In that decision, the Board revised its methodology for determining the cost of capital for the railroad industry by adopting the average of CAPM and the Morningstar/Ibbotson multi-stage DCF model.
Additional information is contained in the Board's decision. A copy of the Board's decision is available for inspection or copying at the Board's Public Docket Room, Room 131, 395 E Street, SW., Washington, DC 20423-0001, and is posted on the Board's Web site, *http://www.stb.dot.gov.*
Pursuant to 5 U.S.C. 605(b), we conclude that our action in this proceeding will not have a significant economic impact on a substantial number of small entities. This action will not significantly affect either the quality of the human environment or the conservation of energy resources.
**Authority:**
49 U.S.C. 10101(14); 49 U.S.C. 10704(a)(2)-(3).
By the Board, Chairman Nottingham, Vice Chairman Mulvey, and Commissioner Buttrey.
Decided: January 23, 2009.
Jeffrey Herzig,
Clearance Clerk.