ESSENTIALS OF VALUE =
instead of $300,000. In other words, $300,000 would be an over-
capitalization in view of the risks of the business, and an
adequate annual net return from a business of this character
should exceed 10 per cent on the total value thereof.
As another illustration of relatively high intangible value, a
newspaper route may be cited. A thousand subscribers, at $4
each, would make the value of this route $4000. The invest-
ment in physical elements such as a cart and horse may be in-
significant. There are, no doubt, many such routes where the
bicycles and hand carts in use by the delivery boys are furnished
by these boys and not by the owner of the route. Practically
the entire value of such a route is represented by good-will.
Intangible Value Under a Restricted Franchise. — When
public utilities are under consideration, the problem may be-
come quite complex and each case will have to be considered by
itself. A restricted or limited franchise, for example, may make
a monopoly of the enterprise, and its terms may be such that
charges for service cannot be reduced by any rate-fixing body
during the life of the franchise. Under such circumstances,
when the volume of business is determinable, it is possible to
forecast with some degree of certainty, on the basis of past ex-
perience, the annual net earnings and a capitalization of these
at a fair rate of interest leads directly to a determination of
value. A comparison between value thus ascertained and the
cost of reproduction of the physical elements establishes the
aggregate value of all intangible elements of whatever nature
connected with the utility. Of course, the capitalization of
earnings, as here set forth, may not in all cases be a simple
matter, because many factors are to be taken into account:
The allowance for replacements must be correctly determined.
The hazards of the business must not be overlooked.
The value of the properties remaining on hand subject to sale
at the termination of the franchise may be a factor of some
moment in determining how much of the investment is to be
amortized within the life of the franchise.
Nevertheless, the fact remains that the restricted, exclusive
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