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

130 VALUATION, DEPRECIATION AND THE RATE-BASE 3. What should be the earnings during the time the steam- boat is in possession of the original owner? 4. What should be the earnings during the time the steam- boat is in the possession of a purchaser after 10 years of service? The first and second questions are answered elsewhere. The owner, by one line of reasoning, finds the remaining value in the steamboat to be 64.17 per cent; the purchaser, by a different line of reasoning, finds the same value. The third question, too, is answered elsewhere. The original owner is entitled to a net return during the entire period of his ownership of 6 per cent on his investment, which is at all times 100 per cent. No deduction is to be made for depreciation because the fund which results from the accumulation of the amortization annuity, together with its interest, is available for no other purpose than the replacement of the steamboat at the end of its period of usefulness. It is dead capital, and remains dead until the property is disposed of or until required to replace the worn-out steamboat. The original owner, therefore, is en- titled to a return of 6 + 2.72 = 8.72 per cent per annum on his investment. In considering the fourth question, it may at first appear as though the purchaser, having invested only $64.17 on each $100 of original cost, could claim a return on this investment alone — that he should be allowed, in addition to the amortiza- tion as above determined, net earnings of $3.85 (6 per cent on $64.17) per annum on what he paid for each $100 of the original cost of the steamboat; that the valuation for rate-fixing purposes, in other words, should be the original investment less depreciation. Under the adoption of this view, it will be seen that, if the steamboat were sold repeatedly, there would be a constantly decreasing appraisal for rate-fixing purposes. In the last year of its service the valuation entitled to con- sideration in fixing earnings would be only 8.23 per cent. This view is unfair to the owner of the property, who should be assumed to be planning a continuation of the steamboat busi- ness. When he takes possession of the steamer, its value to

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