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Published: 2/9/2014. Updated: 8/1/2016

Rate of return on investments (WACC)


The Commission, in accordance with the Methodology on Rate of Return on Investments, approved by Commission Resolution No. O3-510 as of September 22, 2015 (text in Lithuanian), publishes data for calculation of rate of return on investments (WACC). The data will be applied to heat production and (or) supply, hot water supply companies.

Table 1. Data  used to calculate the rate of return on investments

Cap of cost of debt (interest rate), percent, Rd2,18The average interest rate during the most recent twelve-month period of long-term loans given to non-financial corporations, as announced by the Bank of Lithuania.
Return on equity, percent, Re8,89Para 9 of Methodology on Rate of Return on Investments
Share of equity  capital (optimal capital structure), E0,4Para 10 of Methodology on Rate of Return on Investments
Share of debt capital (optimal capital structure),  D0,6Para 10 of Methodology on Rate of Return on Investments
Tax rate, m0,15The income tax rate applied in Lithuania
Risk-free rate of return on investments (in percent), Rf3,24The arithmetic mean of the average weighted profitability of the auctions of the Government bonds  denominated in Litas (till December 31,2014) and Euros (from January 1, 2015) with the maturity period of no less than 3468 days), held during the recent ten-year period.
Equity risk premium , Rerp 5,59 The sum of the equity risk premium of the country with the developed capital market (the US) and the additional market risk premium of Lithuania.
US equity risk premium is defined as difference between the return on investments (in percent) in the US securities market during a last twenty years,  and the rate of return on the US treasury bonds with a ten-year maturity, on the basis of the S&P 500 index announced by the rating agency Standard&Poor's and the data of the US treasury bonds announced by the bank of the US Federal Reserve System.
The additional market risk premium of Lithuania is determined as the difference between the risk ratio (in percent) corresponding to the credit rating of Lithuania and the risk ratio (in percent) corresponding to the US credit rating, on the basis of the data on prof.  A. Damodaran website.
Beta coefficient (levered β)1,01European countries, the utilities industry average degrees of risk, based on the basis of the latest assessment of βu values posted on A. Damodaran website.
Actual weighted average cost of debt capital in heat sector1,91Para 8 of Methodology on Rate of Return on Investments