Opinion ID: 2604259
Heading Depth: 1
Heading Rank: 13

Heading: This Court's Resolution of the Capitalization Rate

Text: (1) Debt capitalization rates. As already explained, we choose, based on the Department's concession to the Tax Court, to treat the debt capitalization rates as not being an issue under this approach. (2) Equity capitalization rates. Schoenwald's rates are theoreticalthe whole DCF model isbut fairly well justified. On the other hand, the Department's rates have two things in their favor: (1) recent market experience suggested that the historical spreads on which Schoenwald relied may have been a little higher than appropriate when compared with spreads between risk-free investments and railroad investments as of the assessment dates, and (2) UP was one of the best-run railroads in the country, suggesting that its spreads should be at the low end of the range of spreads typical of the industry. Both considerations call for a reduction in the rates selected by Schoenwald. The problem lies in choosing a rate: The data actually utilized by Goodwin and Ifflander in the selection of their own rates is so obscure that wholesale reliance on those rates appears inappropriate. We therefore will do what any other trier of fact might be expected to do in the absence of sufficient underlying data to make the calculation wholly on our own: compromise. We select as our equity capitalization rates 17.0 per cent for 1983 and 16.0 per cent for 1984.