130 VALUATION, DEPRECIATION AND THE RATE-BASE
3. What should be the earnings during the time the steam-
boat is in possession of the original owner?
4. What should be the earnings during the time the steam-
boat is in the possession of a purchaser after 10 years of service?
The first and second questions are answered elsewhere. The
owner, by one line of reasoning, finds the remaining value in the
steamboat to be 64.17 per cent; the purchaser, by a different
line of reasoning, finds the same value.
The third question, too, is answered elsewhere. The original
owner is entitled to a net return during the entire period of his
ownership of 6 per cent on his investment, which is at all times
100 per cent. No deduction is to be made for depreciation
because the fund which results from the accumulation of the
amortization annuity, together with its interest, is available for
no other purpose than the replacement of the steamboat at the
end of its period of usefulness. It is dead capital, and remains
dead until the property is disposed of or until required to replace
the worn-out steamboat. The original owner, therefore, is en-
titled to a return of 6 + 2.72 = 8.72 per cent per annum on
his investment.
In considering the fourth question, it may at first appear as
though the purchaser, having invested only $64.17 on each
$100 of original cost, could claim a return on this investment
alone — that he should be allowed, in addition to the amortiza-
tion as above determined, net earnings of $3.85 (6 per cent on
$64.17) per annum on what he paid for each $100 of the
original cost of the steamboat; that the valuation for rate-fixing
purposes, in other words, should be the original investment less
depreciation. Under the adoption of this view, it will be seen
that, if the steamboat were sold repeatedly, there would be a
constantly decreasing appraisal for rate-fixing purposes.
In the last year of its service the valuation entitled to con-
sideration in fixing earnings would be only 8.23 per cent. This
view is unfair to the owner of the property, who should be
assumed to be planning a continuation of the steamboat busi-
ness. When he takes possession of the steamer, its value to
