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

ELEMENTS WHICH REDUCE VALUE J Determination of the Replacement Requirement. — It is pos- sible, by such analysis, when a plant is growing at a fixed rate and has attained an age exceeding the life of its perishable parts, to prescribe a rule for determining the replacement re- quirement; but it must be remembered that a rule thus deter- mined can be strictly correct only for the impossible hypothetical case of service in exact conformity with the assumed probable life, and that for practical application a rule thus determined may require some modification as explained in Chapter VI. For each group of parts having the same length of life, there is to be determined: first, the average annual capital invested, using, however, replacement cost instead of the actual invest- ment; and second, the full number of times that the age of the plant is greater than the useful life of the particular group of parts under consideration. The replacement requirement (for the hypothetical case, in which actual service conforms through- out with the assumed probable life) is then ascertained by multiplication. A pipe line may again serve as an illustration: Suppose it is desired to know the replacement requirement for a pipe line 300 miles long, which has been extended 2 miles each year, the age of the oldest portion of which, therefore, is 1 50 years. The life of the pipe being taken at 40 years, the full number of times this is contained in 150 years is three. The annual replacement requirement will be three times two, or 6 miles of pipe. The 6 miles of pipe requiring replacement were constructed 40 years ago, and the conditions under which this was done may have been materially at variance with those prevailing at the time of their replacement. Consequently, in the deter- mination of the replacement requirement, expressed in dollars instead of in miles of pipe, the replacement cost of the system and not the original cost of capital invested should be taken into account. Expressed as a percentage of the total length of pipe in service, or of the total cost of replacing the entire pipe line, this would be 2 per cent. QC

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