62 VALUATION, DEPRECIATION AND THE RATE-BASE 
or of “conduit values due to paving,” “cost of establishing 
business ”’ or under some other designation. Such an addition 
of intangible value under the name of “ going value ” based on 
the losses during the early years of operation has been seriously 
advocated. If regard should be had in this connection to the exact 
amount in each case of early operating losses, of unprofitable 
investments, such as tunnels or wells for water which turned 
out to be unproductive; destruction by fire or earthquake 
and the like, then the allowance for unprofitable expenditures 
might be greatest in the case of the least worthy enterprise, 
which would be an absurdity. Nevertheless, some allowance 
for unproductive expenditures and for early losses is fre- 
quently justified and these may be taken care of either in the 
appraisal of the rate-base or they may be taken care of in the 
rate of return which when fixed somewhat higher than the return 
on ordinary safe investments will in the course of time amortize 
a part or all of the expenditures which do not appear in the rate- 
base. Under such a procedure there is a recognition of the fact 
that early losses may have been unavoidable, that no blame may 
attach for having made certain unprofitable expenditures and 
that the owner who has invested wisely and under more fortu- 
nate circumstances is entitled to the reward which will be 
brought to him either by giving suitable consideration to * going 
value ” or by allowing him to earn more than ordinary interest 
on his actual investment. 
Example of Intangible Value Created by Earnings. — Take as 
an illustration the case of a property operated at a loss for 5 
years and thereafter at a profit. Suppose that the investment 
in the property was $1,000,000 before operation commenced; 
that cost of operation exceeded the earnings in the first five 
years of operation by $100,000 and that money for the entire 
investment had been borrowed at 6 per cent. During the five 
years the interest payments, compounded at 6 per cent, amounted 
to $338,220, which, together with the operating loss, makes 
$438,220 as the actual outlay by the owner at the close of the 
fifth year in addition to the original investment of $1,000,000.