Opinion ID: 1926458
Heading Depth: 1
Heading Rank: 7

Heading: computation of the overall rate of return

Text: Predicated on my findings that South Central Bell's capital structure of 45% debt and 55% equity is the appropriate basis on which to compute its overall rate of return, that the cost of debt is 7.61% and that the cost of equity is 10.5-11.5%, the overall rate of return may now be determined by applying the formula accepted by the Commission and all of the expert witnesses: Proportion of Debt × Cost of Debt 45% × 7.61% = 3.42% Proportion of Equity × Cost of Equity 55% × 10.5-11.5% = 5.78-6.33% __________ Overall Rate of Return = 9.20-9.75% Therefore, the overall rate of return which South Central Bell is entitled to earn is 9.20-9.75%. I consider this a fair rate of return.