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 VII. The purpose of the appraisal

Collection:: Economics Books

128 VALUATION, DEPRECIATION AND THE RATE-BASE plant which is to continue in service beyond the term of # years, is supposed to be held inviolable for the replacement of the plant at the end of its life. The owner reaps no benefit from it what- ever, beyond holding it as the means for replacing a worn-out plant. The value of the plant in its varied stages of depreciation, plus such amortization fund, should at all times be at least equal to the original investment. The owner, even if he gets an an- nuity, as here assumed, is entitled at all times to the interest, not on a plant valued at first cost or investment less deprecia- tion, but on the entire first cost. Had he determined, instead of building the plant, to keep his funds invested in safe securities at ordinary interest rates, he would, at the end of # years, have been in possession of his entire capital plus interest on the full amount thereof for the entire time. If, under the assumed facts, he were not allowed interest on the full amount invested in the public service plant, an injustice would be done. This is true even when replacement takes the place of amorti- zation. The owner in this case is entitled to interest on the entire capital invested in the plant, and, at the end of the plant’s usefulness, he is also entitled to a return of the capital itself. Suppose that a city constructs a plant, paying cash for it, and collects rates which will just yield a fair rate of interest on the investment. At the end of # years the plant is replaced with a new one of the same capacity. As the city has not included in its rates, theretofore charged, an increment for amortization, it now finds itself in possession of a new plant and a total investment twice as great as the cost of the first plant. Applying the same principles to the second plant, as to the first, rates should be doubled. This, of course, would be an absurdity. A charge by a city for service rendered which is less than sufficient to amortize the cost of the plant within its life may yet be equitable and proper, when the cost of the plant is inten- tionally put upon the whole community and not upon the rate- payer.

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