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

186 VALUATION, DEPRECIATION AND THE RATE-BASE The total required earnings appear largest for the Unlimited Life Method for the reason that the required earnings in the early years of the plant’s life are supposed to have been low. When rates are to be fixed for a public service property which is long established, concerning which past records are unrelia- ble, but which is legitimate, rendering a necessary service and entitled to fair income, the question as to which method of procedure should be adopted presents itself. Let it be supposed that the records indicate a fairly normal development and growth with some years of inadequate earnings and no conclusive evidence that any part of the invested capital has been repaid, but that worn-out parts have been renewed as necessary and that the service rendered has been satisfactory. In this assumed case the application of the various methods of procedure will theoretically produce results as shown in Table 14. If any of the methods except the Unlimited Life Method be adopted, recourse will probably be had to an addition of large values for intangible elements in order that no injustice may be done to the owner of the property. In most cases the Unlimited Life Method will be indicated as most nearly equi- table. This will be yet more apparent when the effect of the non-agreement of actual with probable life upon the application of the various methods of procedure is taken into account. The comparison of results by the methods of procedure which have been under discussion has been visualized, for the special case of a single item which cost $100, in a diagram, Fig. 2. It has been assumed in the preparation of this diagram that in the application of the Unlimited Life Method to a single article the replacement requirement will be anticipated and will be estimated by the compound interest Sinking Fund Method. In the practical application of this method a close approximation of the replacement requirements is not essential because no part of the replacement increment goes to the repayment of capital. This entire increment remains in the replacement account and will be subject to being decreased or increased from time to time as this account shows to be necessary.

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