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 drinking water supply and waste water management companies.
Table 1. Data used to calculate the rate of return on investments
|Cap of cost of debt (interest rate), percent, Rd||2,18|
The 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, Re||8,89||Para 9 of Methodology on Rate of Return on Investments|
|Share of equity capital (optimal capital structure), E||0,4||Para 10 of Methodology on Rate of Return on Investments|
|Share of debt capital (optimal capital structure), D||0,6||Para 10 of Methodology on Rate of Return on Investments|
|Tax rate, m||0,15||The income tax rate applied in Lithuania|
|Risk-free rate of return on investments (in percent), Rf||3,24|
The 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)||1,01|
European 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 drinking water supply and waste water management sector||2,93||Para 8 of Methodology on Rate of Return on Investments|
|Actual weighted average cost of debt capital in surface water management sector||3,55||Para 8 of Methodology on Rate of Return on Investments|