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.

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Document type:: Monograph

Structure type:: Chapter

Title:: Chapter V. Elements which reduce value

Collection:: Economics Books

100 VALUATION, DEPRECIATION AND THE RATE-BASE By the compound interest annuity method of computation, in the selected illustration at 6 per cent interest, the allowance for replacement would be 0.646 per cent of the cost of the sys- tem, which is only one-third of the actual requirement, and this allowance, as already explained, would only then be justified if amortization had covered the entire period in the life of each part of the pipe during which there was no expenditure for re- placements, so that the inadequate annual allowance could be supplemented by the earnings of an accumulated replacement fund. In a plant which is made up of a multiplicity of parts of various periods of usefulness, those which have the same expect- ancy should, as before stated, be grouped together. For each group, the replacement requirement can then be estimated separately, and from the several amounts thus ascertained the total requirement is determined. The rule previously laid down for a hypothetical case is not strictly applicable under the conditions as they actually present themselves. There can be no absolute conformity between the assumed period of usefulness of the various parts of a plant and the time during which they actually prove useful. The probable useful life or expectancy is merely the average life, which is often not reached and is just as often exceeded. Thus, again referring to the pipe line, it is to be assumed that while some of it may serve beyond the average period of useful- ness of such pipe, other parts thereof, from one cause or another, will require replacement early in its life. Consequently, any rule such as that previously laid down, which indicates a uni- form replacement requirement in successive periods, with a sudden rise in the requirement at the beginning of each new period, if the plant be one that is steadily growing, will require some modification. The simplest modification of the foregoing rule is to assume gradual changes in the annual replacement requirement as the age of the plant increases, instead of the sudden changes, and then to call this requirement at all times inversely proportional

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