Flotation Cost Allowance Methodologies: A Synthesis Using Present Value Analysis

S Keith Berry

The Financial Review, 1990, vol. 25, issue 3, 487-500

Abstract: 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. Copyright 1990 by MIT Press.

Date: 1990
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