58 VALUATION, DEPRECIATION AND THE RATE-BASE
ties (if the accounting system throughout has been proper and
the enterprise has met with no untoward experiences) or what
may generally be a safer approximation, the capitalized net
earnings, less the cost of reproducing the physical properties.
A taxicab concern, for example, has invested in the business
$100,000. The net annual earnings after allowing for depreciation
 are $30,000. If it be assumed that 1o per cent per
annum is a reasonable return on an investment of this character
and permanency of the business may be assumed the capitalization
 of the concern might be at $300,000. The good-will of this
taxicab business appears at $200,000. That is to say, if there
were no fear of a reduction of income through competition or
other causes, a valuation three times as great as the actual investment
 might be justified. In such a case the sum of all intangible
 values connected with the business which may include
besides what is strictly good-will, advantageous leases on desirable
 space for the taxi stands and contracts with railroads or
other transportation companies, is the capitalization of the net
earnings of $30,000 per year, or $300,000, less the value of the
physical properties assumed as above stated to be $100.000.
Ordinarily, however, in a business of this character, the earnings
 may at any time be cut down by competition. Any intending
 purchaser taking this into account as a hazard of the
business will conclude that, while earnings of 10 per cent a year
on the value of the tangible property may be adequate, the return
 on the value of uncertain intangible elements should be
very much greater.
He may find circumstances that will justify him in concluding
that the return on any allowance for good-will should be 20 per
cent and in this event he will find:
Total annual net earnings. « . . is «ves rvs eee oii .. $ 30,000
Ten per cent of value of physical properties. .......... 10,000
Net annual return on intangible values............... » 20,000
Capitalization of $20,000 per year at 20 per cent............ $100,000
Consequently, the amount which he, as a prudent purchaser,
would be willing to pay for the business would be only $200,000