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

THE PURPOSE OF THE APPRAISAL -.3 In this event the plant may be regarded as having unlimited life. Each part thereof as it wears out is replaced out of cur- rent earnings. The owner does not maintain an amortization fund, neither is any of his capital rendered dead or unavailable. To him the value of the property is at all times 100 per cent, so, too, in the case of a purchaser. Knowing that all replacement requirements are fully covered by the earnings, the purchaser is willing to pay roo per cent for the plant, regardless of the amount of accrued depreciation. The case may be considered of a public service property whose earnings have been inadequate to supply any amortiza- tion increment, but which will in the future be able to earn the actual annual replacement requirement. The original invest- ment in this case having been 100 per cent and there having been no amortization annuity in the past, there can be no trans- fer of the property at less than roo per cent without loss; but if, by reason of inadequate returns, the market value could not be maintained at roo per cent, and a sale has been made at less than this sum, the new owner will be compensated and pro- tected if, on his investment which is not original cost, he earns reasonable interest and an adequate amount for replacements. This must be so, because, in the future, actual replacement re- quirements being covered by the earnings, the worn-out parts will be replaced without cost to the owner. This replacement neither increases nor decreases his investment; but, if the property is extended and new parts are added, such additions represent newly invested capital to the full amount of their cost, and in such a case his investment, expressed as a percentage of the total cost, will gradually increase. At all times, however, without causing loss to the new owner, that part of the plant which he bought at a depreciated value could be valued at his purchase price, while all extensions sub- sequent to the purchase, on the assumption that replacements are met out of earnings and that there is no amortization of capital, should, for rate-fixing purposes, be appraised at roo per cent. Such a course, however, would deprive the new owner of 3:

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