The remuneration of capital invested in the parameter view “K”, the calculation and interpretation

Dr. Xhelal Mziu, PhDc. Eralda Shore


In this article we determine the level of remuneration of invested capital, considered “R”. First we will explain the parameter K, which should be applied to the average value of invested capital, equal to the rate Interest Rate Swap (IRS) from 15 to 18 years, with a value-added mark up for risk. The article has the main objective of providing full explanations about ways to set the parameters mentioned above.
The methodology used to estimate the parameter K, enables the calculation of compensation related to equity investing with a parameter set by the financial market, the added value of a mark up for risk at the maximum level of 4%-5%. So candidates hydro service management, integrated, in the process of bidding, may propose lower value, in view of the alleged financial structures in the corresponding business plan.
Given the analytical methodology used to achieve results in the mentioned alternative method for calculating K, the practice may be preferable to use a straight average WACC, calculated starting from the tables presented below. Specifically can be used a WACC equal to 10% of WACC is calculated as the average of the distinguished black table 3.

Keywords: K parameter, mark up, Interest Rate Swap, WACC, invested capital, equity compensation

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