The people's voice., 1959-08-28

return come TO Cne same Cn1ng.
2. The cost of capital to Mountain
States does not exceed the cost OF
capital to American Tel. and Tel. Co
3.The cost of capital for rate-mak.
ing purposes should be computed as
the necessary cost of capital under
economic and efficient management.
A. Necessary cost of capital to
Mountain States Company in respect
to Montana operations is measured by
the necessary cost of the bond and
stock money which represents the in
vestment which has been made in
the business by the owners and long
term creditors.
5. A most economical cost of cap
ital is achieved by Bell Telephone
Company when it has a capital struc-
ture at least one-half of which is
comprised of bonded indebtedness.
6. Cost of bonded indebtedness is
not what it would cost to raise such
500 of full capital in today's market
but what the cost is to the Company
of its outstanding bonded indebted
ness adjusted to a 500 bond and
500 stock equity capital structure.
7. The proper adjustment where the
bond proportion of the capital struc-
ture has been allowed to fall below
500 is to compute the cost as it would
be had the management retained and
maintained the economical capital
structure which it formerly possessed.
8. At the most, only the additional
bonds which it would be necessary to
sell at the current market in order to
raise total bonds to 500 of the en-
tire invested capital should be cal
culated at current costs.
9. The best measure of the neces-
sary cost of equity capital or common
stock capital are the most recnt earn
ings-price and dividend-price ratio.
10. Investors in American Tel. and
Tel. Company stock are primarily in
terested in the dividend rate.
IL. Average of the dividend mar
ket price ratio and the earnings mar
ket price ratio is generous to the
equity owner and gives them higher |
maximum rate of return than they |
demand.
IL. Market price used in computing
earnings price ratios should be prices
hat actually reflect the investor valu-
alton of the earnings.
13. Integrity of the investment is
if the rate of return al
owed can reasonably be expected to
maintain the utilities common stock
1t a market price equal to book value.
Ia. No allowance should be made
or underpricing in use of pre- -emptive
lights in issuing common stock.
70 DETERMINE A FAIR
,ATE OF RETURN"
DIR. Thatcher in his testimony en-
hasized the following points:
81 have used the tests of a fair
ate of return that have come to be
in the law and practice
f American rate regulation. My esti-
hates are based on the financial
ests of a fair rate of return. They
estimates on the cost of
apitaP or capital-attracting rate of {
eturn in that have composite cost g
the several classes of capital en- |
loyed-debt, and common stock t
guilty, properly weighted on the basis '
an appropriate capital structure. +
1919 Debt Capital and 500 Com
ION Stock). v
ga primary virtue of this meth b
is its objectivity. By use of j
ecognized statistical techniques, the t
,tual costs of debt capital can be e
etermined, and considerable knowl-
ige can be CLEANED of the markets b
valuation of capital-attracting rate d
II common stock. I"
"a cost of capital adequate to at
act capital to a public utility con-
nuously over a period of years is
lated to whatever rate of return
| investor might anticipate from al
rnative investments of reputedly
risks"
sc SET DEBT-COMMON
TOCK RATIO IN 1858 h,
Following the last rate increase re- cy
est of the telephone company in az
ST, the Montana Public Service tr