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 IX. Possible procedures when the rates for a public service are to be fixed

Collection:: Economics Books

POSSIBLE PROCEDURES IN FIXING RATES z under the Unlimited Life Method of procedure will be the amount of the investment without deduction of depreciation, and the replacement requirements, until definitely ascertained by experience, will be approximated from the estimated cost of effecting the replacements, with due consideration of the age and expectancy and the probable life new of the individual parts of which the property is made up. Sinking Fund Method Illustrated. — Some of the principles that govern the establishment of rates may be made clear by the use of an illustration. An electric generator with a 20-year life will serve the purpose. Assume, in the absence of any accepted method of procedure, that remaining value is deter- mined by deducting from cost the accrued depreciation esti- mated by compound interest sinking fund methods. Suppose the generator to be a part of a light and power system and suppose, further, that it has reached the last year of its useful life and will have no scrap value. A purchaser will value the generator, if he estimates interest on a 6 per cent per annum basis, at about 8.23 per cent of its original value and this js all that he will pay for the same. He takes upon himself, when he buys the light and power plant, an obligation to replace the generator with a new one at the end of another year. He must then renew the investment represented by this article. The obligation which he voluntarily takes upon himself at the time of his purchase to replace the generator in a year is 91.77 per cent of the cost of a new generator. At the end of the life of the generator, he will have received in his earnings the last increment of the original investment in the generator, or 8.23 per cent of its cost, and he will meet his obligation to continue in business by acquiring a new generator and thereby renewing the full original investment in this particular appliance. It makes no difference whether there is only one generator, or whether there are 20 in use. The principle is always the same. Moreover in such a simple case as that of 20 generators of all possible ages, each with a useful life of exactly 20 years, the accrued obligation to replace these generators when worn 16%

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