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9 <br /> FINDINGS: <br /> To support a rate of return greater than that permitted under the benchmark rules, CPI's <br /> submittal included a Cost of Capital Analyses report which used information from three <br /> investment banking firms: First Boston, Morgan-Stanley and Lazard Freres. This report <br /> identified the cost of equity for the cable television business, a risk enterprise, as being <br /> between 20.3% and 30%. This differs markedly from the 11.25% allowed by the Federal <br /> Communication Commission in the benchmark rate calculation; however, the report makes the <br /> case for a rate greater than the benchmark. <br /> Whether or not a 15% overall return on capital is fully justifiable is uncertain at this time. <br /> Such a determination requires full knowledge of CPI's capital structure. While their data may <br /> support a rate of return than greater than 11.25%, it is not possible to make such a <br /> determination from the information provided in the FCC-1220 filing, Howcver, since the <br /> company is seeking approval to support the current rates for regulated service, their data will <br /> likely support an overall return on capital greater than the 11.25% FCC benchmark rate. <br /> In accordance with the FCC's rules, the company did not include the uncapitalized investment <br /> in distribution facilities construction in the value of the net rate base. Current subscribers are <br /> not subsidizing the company's investment in new facilities and equipment prior to their actual <br /> use. [see Table B: Plant Under Construction]. <br /> The com deducted in accordance with the FCC's rules unam goodwill. Inclusion <br /> Many orttzed g <br /> of goodwill in the net rate base artificially increases the cost to subscribers for regulated cable <br /> television services. The FCC rules disallow the inclusion of goodwill expense from the rate <br /> calculation. [sex Table B: Goodwill]. <br /> The net rate base was adjusted to include the value of other intangible assets. Included are <br /> unidentified accumulated book losses, yet loan costs have been removed from the rate base <br /> [see Table B: Other Intangibles). <br /> Nearly three quarters of tho net rate base consists of intangible asses, as opposed to a little <br /> over one quarter of the rate base for tangible assets [see Table C below.] <br /> Table C <br /> Tan ble Net Rate Base Allocation <br /> Tangibles 21.29% $76,000.00 <br /> Intangibles 78.71% $281,000.00 <br /> Total Rate Base 100,00% $357,000.40 <br />