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

08 VALUATION, DEPRECIATION AND THE RATE-BASE tization and replacements should not be determined by the interest bearing sinking fund method based on original probable life but should be otherwise determined, as hereafter shown. When, in other words, opportunity is not given to accumu- late the 40 per cent of the invested capital (approximately), which, for ordinary periods of useful life of perishable properties, should in the course of time be in a replacement, depreciation or amor- tization fund, any amount estimated from amortization tables on the original full period of useful life will fall short of the real replacement requirement. Illustration of the Replacement Requirements. — Let it be assumed that a conduit, such as a cast-iron pipe, used for any purpose, has a length of 40 miles. Let it be also assumed that the pipe is not being further extended, that the life of this pipe is 40 years, no more and no less, and that it was constructed progressively, one mile each year. It took 4o years to install the pipe, and at the end of this time the first mile of pipe laid was ready for replacement —it had served its time. Each year thereafter, one mile of pipe has to be replaced, and the replacement at this rate will continue indefinitely. The annual replacement expenditure during the first 40 years is nothing, but, thereafter, it is the cost of installing one mile of pipe. If prices of labor and material have remained constant, and if conditions have otherwise remained as they were when the first mile of pipe was laid, then the annual replacement expenditure will be one-fortieth of the total amount invested in the pipe line. Provision for this replacement must be made if the pipe is to continue in service. If, now, the extension of the pipe pro- gresses beyond the go-year period at the same rate, before assumed, of one mile per year, there will be no changes in the annual replacement requirement during a second period of 40 years, but at the end of this second period — at the end of 8o years — there will be 80 miles of pipe in service, and thereafter during the third go-year period there will have to be replaced annually 2 miles of pipe, or one-fortieth of 80 miles, or twice the amount of pipe extension per annum.

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