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Flotation Cost Allowance Methodologies: A Synthesis Using Present Value Analysis
Author(s) -
Berry S. Keith
Publication year - 1990
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1990.tb00809.x
Subject(s) - allowance (engineering) , shareholder , consistency (knowledge bases) , key (lock) , value (mathematics) , stock (firearms) , economics , actuarial science , risk analysis (engineering) , computer science , econometrics , operations management , business , finance , engineering , mechanical engineering , corporate governance , computer security , artificial intelligence , machine learning
This article demonstrates a consistency amongst several alternative flotation cost recovery methodologies using present value analysis. All of the recovery methodologies assume that the stockholder is made whole through time. The key difference among them is the temporal pattern of cost recovery. It is shown that the appropriateness of prospective application of a particular flotation methodology is dependent upon prior regulatory treatment. The article provides a framework for addressing the issues concerning the proper market price‐to‐book value ratio and the appropriateness of an adjustment even if a utility has no plans to sell new common stock.