THE PURPOSE OF THE APPRAISAL 125
sive salary payments, for unprofitable or useless expenditures
and losses by accident. When cost cannot be thus ascertained
or whenever there is a doubt and the importance of a close ap-
proximation warrants such procedure, the cost of reproducing
the property is to be estimated. Proper allowance must be
made, too, for all expenses of whatever nature connected with
construction and with the establishment of the business.
Second Step — Deferred Maintenance and Depreciation. —
The second step will be to ascertain the deferred maintenance,
if any, and the accrued depreciation. The accrued depreciation
will be the difference between the cost of reproduction new and
the present or remaining value of the items which make up the
property and which are subject to depreciation.
Third Step — Cost of Operation. — The third step will be the
determination of the cost of operation. According to the na-
ture of the business this may be directed to the aggregate out-
put of commodities or service, or it may cover a segregated
analysis of cost of operation for a variety of services or commod-
ities. But the essential fact to be ascertained is the total out-
lay including interest on the investment, salaries and wages,
supplies, maintenance and repairs, current depreciation or re-
placement requirements, and in the case of a franchise, or
patent right with a limited life term, or in the case of an oil
well or a mine with a limited oil or ore body, including also an
amortization increment.
Fourth Step — Earnings, Present and Prospective. — The
fourth step will be the determination of the earnings, current
and prospective, that will result from such charges for service or
for the commodity as may reasonably be assumed to be proper
and dependable. It is here, in the case of the public utility, that
there may be much uncertainty due to the difficulty of fore-
casting the attitude of the rate-regulating authorities toward the
public service corporation. For while it is true that private
property may not be taken for public use without due process
of law and that there must be no confiscation through inade-
quate earnings, there is yet some uncertainty relating to the
