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

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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 Equal Annual Payment Method and the probable annual re- placement requirements as these would be estimated by the hypotheses of failures which are referred to in Chapter VI. These curves show the wide departure of the results by the Straight Line Method and by the Equal Annual Payment Method from the actual maintenance requirement and demon- strate the desirability of proceeding under the Unlimited Life Method. The replacement requirements line represents ap- proximately the expenditures which are necessary from time to time for renewals to keep the plant in an efficient condition. The wide departure of these from the amortization lines deter- mined by the common methods of estimating depreciation are made apparent by the diagram. Further comment is hardly necessary, except to say that under the Unlimited Life Method the actual replacement requirements may be assumed to ap- proximate lines 1 and 3 for a number of articles of the same probable life in a plant of full growth and to approximate lines 2 and 4 for articles distributed in equal amounts to all possible ages (plant made up of uniform annual additions). Advantage of the Unlimited Life Method. — The comparison of methods of procedure when valuations are to be used as the basis of fixing rates may be summed up in the broad statement that a close approximation of the rate-base and of the necessary annual earnings is not possible by any method of appraisal which makes the ascertainment of accrued depreciation neces- sary; that the use of any such method requires trained experts and involves cumbersome calculations and that the uncertajn- ties of the determination of depreciation affect not alone the valuation but also the required annual earnings, while, on the other hand, the methods which make use of the amount of capital reasonably and properly invested as a rate-base are simpler and free from uncertainties except in the matter of the provision which should be made either for current depreciation under the Sinking Fund Method or for replacements under the Unlimited Life Method. The last-named method has the unique advantage of easy adaptation to any situation that may develop, IO:

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