308 VALUATION, DEPRECIATION AND THE RATE-BASE 
return . . . if there is certainty that it will be earned, is the 
real basis for the intangible values as they would be taken into 
consideration by a purchaser.” 
Along the same line of reasoning Mr. Allen Hazen, also of the 
highest standing among consulting engineers who have devoted 
attention to valuation matters, in the rate case already referred 
to, says: 
« When a business is established and going and earning a 
certain revenue, it is normally worth to the investor what that 
income amounts to, capitalized on a rate of return on other in- 
vestments of equal security, and that rate of return is normally 
less than the amount which a company has to have the chance 
of earning, if it can, in order to induce capital to go into an enter- 
prise of that kind; in other words, if you want to build the 
Calaveras works, and you want people to put their money into 
the enterprise on a chance of earning some rate of return without 
any guarantee that they will earn it — simply on a chance — we 
have to make that chance 7 per cent, we will say. Now, when 
the Calaveras works are built, and if the enterprise is successful 
and it earns that 7 per cent on what it has cost, and is estab- 
lished, then the man on the street will capitalize that income at 
6 per cent and the plant is worth one-sixth more than it cost.” 
The Master in Chancery in this case upon reviewing the 
testimony of Mr. Hazen, of which the above is but a brief extract, 
then goes on to show what going value would be created if various 
rates of return appropriate for a going plant and a like plant 
ready to begin business were assumed. It is with some satis- 
faction that the author makes note of these facts and of the 
endeavors by others to lay a basis in the earnings for “ going 
value,” because they confirm his conclusions that this basis lies 
there and that capitalization of the earnings or value should not 
be used as a rate-base. (See preceding pages.) 
May we not conclude, then, that in the case of the public 
utility which is subject to regulation, its intangible values arise 
from some allowance in the earnings, in excess, by some pre- 
determined amount, of earnings which would just yield an ordi- 
nary rate of interest on the actual capital reasonably and properly