APPENDIX C - WEIGHTED AVERAGE COST OF CAPITAL CALCULATION

Cost of Debt   Weighted-average cost of debt (1) 11.1% Tax rate (2) 20% After-tax cost of debt 8.9%   Capital structure   Debt 0.21 (3) Equity 0.79 (4)   WACC 15.5%

Cost of Equity   Risk-free rate (5) 6.1% Unlevered beta (6) 0.79 D/E 0.5 Tax rate 0.2 Relevered Beta: 1.1 MRP for developed economy (USA) 6.8% Market return (S&P 500) (8) 9.7% -US 30-year T-Bond ytm (9) 2.9% +Country risk premium (RF) 3.2% RF Government 30-year Bond ytm (5) 6.1% -US 30-year T-bond ytm (9) 2.9% Market risk premium (Russia) (7) 10% Cost of Equity 17.2%

 

Notes:

(1) Weighted average interest rate paid on company loans and borrowings; 1H 2012 interim accounts

(2) Corporate income tax rate under Russian legislation

(3) Book value of debt as for interim FS for 6m 2012, plus amount planned to borrow for acquisitions

(4) Market value of equity as for 10 Jan 2013

(5) Yield-to-maturity on a 30-year USD denominated government bond maturing in 2028; rusbonds.ru

(6) Average unlevered beta for the group of international peers

(7) Market risk premium for Russian Federation is calculated as:

MRP (developing market - RF) = MRP (developed market - USA) + Country Risk Premium

where:

- MRP (USA) = Market return (USA) – Risk-free rate (USA);

- Country risk premium is estimated by sovereign yield spread.

(8) Annualized expected return on S&P500 calculated based on 36 months of historical data

(9) Yield-to-maturity on a 30-year US T-Bond maturing in; bloomberg.com

Source: A-Team analysis