Valuation, depreciation and the rate base

Bibliographic data

Monograph

Identifikator:: 174667931X

URN:: urn:nbn:de:zbw-retromon-119897

Document type:: Monograph

Author:: Grunsky, Carl Ewald http://d-nb.info/gnd/10180959X

Title:: Valuation, depreciation and the rate base

Edition:: 2. ed., revised and extended

Place of publication:: New York

Publisher:: Wiley

Year of publication:: 1927

Scope:: X, 500 Seiten

Digitisation:: 2021

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter V. Elements which reduce value

Collection:: Economics Books

96 VALUATION, DEPRECIATION AND THE RATE-BASE invested capital until the end of the probable life term. If the fund resulting from the accumulation of such increments be applied at any earlier date, a new amortization annuity, based on the remaining value and the remaining life, must be com- puted. Incomplete Amortization. — It will be seen that if an amor- tization annuity thus determined from probable life when an article goes into service be deducted from the investment from year to year, the result will be incomplete amortization. In the case of an article with a probable life of forty years, the amortization rate thus computed at 6 per cent interest would be 0.6462 per cent per annum. The amount of capital returned in forty years would be $25.85 on each $100 of capital invested and there would remain $74.15 still to be made good at that time. These facts make clear the point that, whenever amortiza- tion in lieu of replacement is accomplished by annuities bearing compound interest, the appraisal for rate-fixing purposes must be of the entire investment without deduction of accrued depre- ciation. Second Mathematical Determination of the Replacement Fund. — The foregoing mathematical demonstration that the accumulation in a replacement fund for a plant of mature age, when computed by the compound interest sinking fund method, and actually earned should amount to a considerable sum, con- firms a conclusion which can be reached in a more direct way. In the assumed case of a plant which has a life of » years, and of which one-nth has been constructed each year, after » years there will have to be replaced one-nth thereof each year. Because the annual investment in the installation has been uniform there will be, for each dollar invested per year, a total investment of # dollars. The annual replacement after # years, for each dollar annually invested, will be $1. If now the annuity to replace the several parts of the plant in # years is a dollars for each dollar of the annual investment, then after » years the annual amount re-

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