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,
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