THE PURPOSE OF THE APPRAISAL : 
Rate-Base with and without Deduction of Depreciation. — 
The application of the fundamental principles, elsewhere noted, 
to any public utility plant will show that the determination of a 
rate-base without deduction from the capital actually but rea- 
sonably invested is a proper proceeding, provided, of course, 
that the replacement requirements are not overlooked and are 
computed by some proper method. 
It may be repeated that, when depreciated value or invest- 
ment less accrued depreciation is taken into account as a basis 
for computing necessary earnings, the current depreciation or 
amortization must be computed on the basis of depreciated value 
or investment and the remaining life of the plant or of its parts. 
This can best be made clear by an illustration: Let it be 
supposed that the passenger rates and the freight tariff on a 
steamboat line are subject to regulation, and that some one 
going into the steamboat business builds a steamer for the ser- 
vice. Let it be assumed, too, that in connection with this busi- 
ness he requires no capital investment other than the cost of 
the steamer; that terminal facilities, office space, and whatever 
else he needs, are obtainable by rental. For the purpose of this 
illustration, let it be further assumed that the volume of busi- 
ness is such that there is no doubt about the income, so that 
the element of hazard is eliminated. 
If the steamboat has a life of 20 years, it will gradually 
depreciate in value and will go out of service at the end of a 
20-year period. Ignoring its possible scrap value, which is 
immaterial for the purpose of this illustration, the following 
questions are to be considered. 
At the end of 10 years, with interest at 6 per cent per annum, 
and earnings just sufficient to yield interest plus an amortiza- 
tion, figured for a 20-year life at $0.027185 on each dollar of 
the investment: 
1. What will be the value of the steamboat to the owner at 
the end of ro years? 
2. What will be the amount that a purchaser can afford to 
pay for the steamboat at the end of 10 years? 
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