Imrecon

Imrecon has advised on, prepared consultation submissions and presented written and oral evidence in the High Court on cost of capital issues for regulators, regulated companies, user and user groups and other clients. 

While familiar with the continuing academic debate on cost of capital issues, there are three areas on which Imrecon's advice currently focuses:

• analysis of systematic risk issues to inform estimates of beta (an important component of the cost of equity)
• relating measures of volatility in returns over a control period to the question of whether the equity market risk premium should be estimated using arithmetic or geometric means
• relating the interactions between inflation, capital allowances and tax relief on debt interest to a real-terms weighted average cost of capital calculation.

An example of Imrecon's analysis of systematic risk issues includes developing and using Monte Carlo simulation techniques to assist a regulator decompose a beta estimate based on share price observations for a group into separate betas for its regulated businesses.