Valuation, depreciation and the rate base

Bibliographic data

Monograph

Identifikator:: 826042163

URN:: urn:nbn:de:zbw-retromon-35589

Document type:: Monograph

Author:: Kolb, Georg Friedrich http://d-nb.info/gnd/118564765

Title:: Handbuch der vergleichenden Statistik- der Völkerzustands- und Staatenkunde

Edition:: 4. umgearb. Aufl.

Place of publication:: Leipzig

Publisher:: Felix

Year of publication:: 1865

Scope:: 1 Online-Ressource (XX, 548 S.)

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Title page

Collection:: Economics Books

132 VALUATION, DEPRECIATION AND THE RATE-BASE Although it may be superfluous, one more illustration of this principle will be given: Let it be supposed that the owner borrows money from a bank at 6 per cent per annum to build a steamboat, and that he earns 6 per cent plus the amortization increment of 2.72 per cent. Of the $8.72 to his credit at the end of each year’s business for every $100 of capital invested, he pays the bank $2.72 on account of principal and so much of the remaining $6 as may be necessary to meet the interest then due. This will be all of the $6 the first year, and a decreasing amount thereafter until the end of the 20-year period, when his steamboat is re- tired. He then finds that he has paid back to the bank on account of the borrowed capital twenty annuity increments of $2.72, amounting to $54.40, and that there is still due to the bank $45.50. He also finds that the various amounts remaining in his hands from year to year, $0.16 at the end of the second year, $0.34 at the end of the third year, $o.52 at the end of the fourth year, and so on, together with interest thereon at 6 per cent, when computed for the 20-year period, will amount to the $45.50, the balance due at the bank. The owner finds he has earned nothing. He has invested no money of his own and has received no return, which is as it should be in this hypothetical case. The rates, however, throughout the entire 20 years were fixed on the principle that 6 per cent per annum should always be allowed on 100 per cent of the capital invested, together with the amortization annuity, but without any deduction for depre- ciation. They could not have been fixed lower without entailing loss to the owner. Unlimited Life. — The value of a revenue-producing property when the earnings thereof include an amortization annuity has already been discussed. It remains to consider the case of a property which, in addition to the accepted reasonable rate of interest (net), is without limit as to its time of serviceability, earning the estimated annual replacement requirement deter- mined by some formula, as above explained, instead of the annuity computed from amortization tables.

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