Opinion ID: 413378
Heading Depth: 3
Heading Rank: 3

Heading: Long-term Debt-Equity Ratios

Text: 166 EPA assumes that the best data for determining the cost of investment is a source's average debt-equity ratio for the last five years, see 45 Fed.Reg. 50,140 (1980), but admits that this may cause the model to overestimate temporarily the benefits of noncompliance to a company that chooses to finance pollution control equipment with low-cost development bonds. This choice is based on the assumption that, due to investors' behavior, firms tend to maintain an equilibrium debt-equity ratio over the long run. In addition, EPA does take into account the availability of development bonds when calculating the interest rate to be applied to debt, even if it does not when projecting an individual company's capital structure. EPA's choice is reasonable, and we affirm it. 167