Internal consistency of risk free rate and MRP in the CAPM

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2006 RMIT University, Australia Economics Unit for MBA Developed the course materials for the economics unit in RMIT’s MBA course. Speeches and presentations 2010 Energy Networks Association, Melbourne Setting the cost of debt for Australian energy businesses 2007 Energy Networks Association, Melbourne Setting the cost of capital for Australian energy businesses 2005 International Telecommunications Society regional Conference, Perth Stepping over the Competitive Line 2005 ACCC Regulatory Conference, Gold Coast Exclusive Rights to Content and Competition in Telecommunications 2004 Office of the Water Regulator, Perth Cost Benchmarking – Practical Pitfalls 2004 Macquarie Bank, Terrigal Internal presentation on regulatory risk across jurisdictions and industries 2003 ACCC Regulatory Conference, Gold Coast Anticompetitive Pricing in Telecommunications 2003 ACCC Conference on SPI PowerNet Regulatory Decision Operation of the efficiency carryover 2002 International Telecommunications Society regional Conference, Perth TSLRIC Regulation and Leverage of Market Power
Multi net Group Holdings Pty ltd ACN 104 036 937 29th March 2012 By email: Tom.Hird@ceg-ap.com Dr Tom Hird Competition Economists Group (CEG Asia-Pacific) Suite 201 111 Harrington Street SYDNEY NSW 2000 Australia Dear Dr Hird, Multi net Registered Office: • 43-45 Centreway Place • PO Box 449 • Mt Waverley Victoria 3149 Australia • Telephone (03) 8846 9900 • Facsimile (03) 8846 9999 Our Reference: MN.PG.1 0.02 Expert report in relation to the market risk premium and the cost of equity Background Rule 87 of the National Gas Rules sets out provisions relating to the rate of return (or weighted average cost of capital) as follows: "(1) The rate of return on capital is to be commensurate with prevailing conditions in the market for funds and the risks involved in providing reference services. (2) In determining a rate of return on capital: (a) it will be assumed that the service provider: (i) meets benchmark levels of efficiency; and (j) uses a financing structure that meets benchmark standards as to gearing and other financial parameters for a going concern and reflects in other respects best practice; and (b) a well-accepted approach that incorporates the cost of equity and debt, such as the Weighted Average Cost of Capital, is to be used; and a well-accepted financial model, such as the Capital Asset Pricing Model, is to be used." The revenue and pricing principles in section 24(2) and (5) of the National Gas Law state: "24(2) A regulated network service provider should be provided with a reasonable opportunity to recover at least the efficient costs the operator incurs in providing reference services; and
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Internal consistency of risk free r
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7.2. Methodology ii) 43 7.3. Method
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Table of Tables Table 1: AAA to BBB
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(or higher) equity premium, thus le
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Total cost of equity (AMP method) S
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19. Material increases in demand fo
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Conclusion 23. I consider that the
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24(5) A reference tariff should all
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2. Movements in the risk free rate
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� sets the market risk premium pr
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In fact, we know from earlier studi
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4. Movements in the risk free rate
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Figure 4: Spread between AAA corpor
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Table 1: AAA to BBB spreads at 1 ye
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64. It is also common practice to u
Page 31 and 32: Figure 8: AMP method estimate of Ro
Page 33 and 34: 5. Why required returns on riskier
Page 35 and 36: iii. Indeed, the increase in risk p
Page 37 and 38: Figure 10: 10 year risk premiums on
Page 39 and 40: Figure 11: Risk premiums on listed
Page 41 and 42: ating one notch to the equivalent o
Page 43 and 44: Reserve Bank assistant governor Guy
Page 45 and 46: While at times like the present, li
Page 47 and 48: … The Tribunal considers that an
Page 49 and 50: 134. The market level of the ILG’
Page 51 and 52: Figure 14: US regulatory return on
Page 53 and 54: 2005. This amended measurement peri
Page 55 and 56: conditions. One can test this presu
Page 57 and 58: firms in order to arrive at an esti
Page 59 and 60: 171. Combining my best estimate of
Page 61 and 62: Table 4: Summary of results from ea
Page 63 and 64: Appendix A. Assumptions used in DGM
Page 65 and 66: Tom Hird is a founding Director of
Page 67 and 68: 2009 Chapman Tripp, New Zealand Exp
Page 69 and 70: Providing Optus advice on a confide
Page 71 and 72: 2009 Gilbert and Tobin, Australia C
Page 73 and 74: Cost of Capital Advising on the cos
Page 75 and 76: General Regulatory Analysis 2011 Si
Page 77 and 78: universal service obligation reform
Page 79 and 80: 2003 TransGrid, NSW Australia Submi
Page 81: Advising OneTel in their arbitratio
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Internal consistency of risk free rate and MRP in the CAPM

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