6 VALUATION, DEPRECIATION AND THE RATE-BASE
against the land whether under this name or under the name
of “water right,” or otherwise, might be agreed to, such that
the capital remaining in the canal enterprise, as a proposition
apart from the land, would be reduced to a reasonable amount.
If neither of these alternatives are adopted the canal venture
may be permanently unprofitable, from the standpoint of present
owners. This will be the case when the rates that would yield
interest on the investment are in excess of the value of the
service rendered and cannot be supplemented by a participa-
tion of the canal owner in the unearned increment which the
construction of the canal has brought to the land owner.
As another illustration a railroad may be considered which
was primarily constructed for the development of a tract of
land or for the development of mineral or timber resources.
There can be no question that when considered from the broad
standpoint of the advantage to society the construction of a
railroad under such circumstances may be justified. When this
railroad begins to serve the public and the freight tariff and
passenger rates are to be fixed, these may have to be established
on the basis of the fair value of the service rendered without
any attempt to make the earnings yield interest on the capital
invested in the road, or suitable consideration may have to be
given to the fact that a part of the investment was made for
the benefit of some special enterprise such as a rock quarry or
a lumber business and should not have been charged to the
road at all.
These limitations upon the use of an appraisal as an element
for consideration in fixing rates are fully recognized, but these
and other limitations are not such as to detract from the de-
sirability of referring to and using appraisals under ordinary
circumstances.
Basis for Sale Price — Business Enterprises. — Everyone
who engages in a business enterprise must know:
The cost of the article in which he deals at the time the article
is sold.
The cost of the plant such as buildings, roads and equipment
