300 VALUATION, DEPRECIATION AND THE RATE-BASE
mately invested, including cost of developing the business, cost
of franchises, water-rights and the like, but without deduction
of accrued depreciation, a reasonable profit allowance should not
be difficult to determine. If the interest allowance on the ratebase
 be just sufficient to cover the cost of borrowed money, due
regard being had to the effect of legitimate discounts and commissions,
 then certain additions to earnings, perhaps about as
below set forth, would be fair and proper, this being in lieu of a
higher interest rate and of interest on the additions to invested
capital, which it has been customary to make for going value,
or other intangible values, but which really result from the capitalization
 of profit. It will be found simpler and more satisfactory
 to reverse the usual procedure by determining what the
annual profit should be, instead of starting with a set of intangible
values which after all result from the capitalization of an illdefined
 arbitrary subdivision of this profit. The following profit
allowances are tentatively suggested and remain subject to modification
 to fit local conditions.
When the gross income is $ 10,000 about 15% $ 1,500 per year
AEE # 100,000 “14.5% T4500 Tee
FORE Ly 0 i 500,000. 13.590 G7, Soo“ S IEEE
eC eele ot i 1,000,000% © ive 595 T25,000, le
Sih IE 7 3,000,000 “10% 200,000/1¢¢ Ee
He “ i 5,000,000% 0% ATO,000, 1) 1150
A # “8 10,000,000 8% 800,000 “at
EE RE ¢ & 20,000,000 7% 1,400,000 _ “IL
GeO Ee 5 5 40,000,000 6% 2,400,000" “WF
JIRA 4 “ 100,000,000 5% 5,000,000 ‘ «
The allowances, here suggested as additions to the interest
return on the natural rate-base, are those which appear reasonable
 under ordinary conditions. They should be considered
subject to modification to fit any particular case and they may
not be adequate when it happens that the cost of output has
been materially reduced by the introduction of a new invention
which may be the result of efficient management and skillful
operation, and the use of which may entitle the owner of the
utility to larger profit for a time at least than he would expect
under ordinary circumstances.