HD 2765 1913 MINING DEPT. COPYRIGHT, 1912, BY D. VAN NOSTRAND COMPANY. mining Delst BO VIMU AIMBOLIAD Norwood Press J. S. Cushing Co. - Berwick & Smith Co. PREFACE THE demand for information regarding the valuation of public utilities has been growing at a rapid rate during the last few years. The reason for it is not far to seek. Many states have put their public utilities in charge of Commissions appointed or elected for the purpose, and these commissions in many cases demand valuations of the properties when permission is asked to make a change in the rates, or to add to the securities for any purpose. Many corporations are even now having careful appraisals made of their property and are as carefully keeping them up to date in anticipation of the day when the public, through the proper channels, will demand changes in rates which will necessitate such appraisals. These conditions have brought on an urgent demand for information as to methods of valuation which, as yet, has not been available. The author has attempted to supply a part of this demand with a book almost rudimentary, in order to show how simple are the elements going to make up valuation. The subject is too large to be treated here in more than an elementary manner, and the writer has condensed much of the theory, expanding only those elements which seem to be most needed by engineers. After a short discussion of value, the purposes of its determination, and directions for determining it, a valuable court opinion by Judge Savage of Maine has been given in full as embodying the best instructions for valuation that the writer has yet encountered. Following this is a large number of forms developed for the purpose of making more perfect inventories, and for assembling and classifying the data in proper order. Many of these forms have been reproduced photographically, by permission, from copies of those which have been developed and used by the Joint Engineering Staff of the Wisconsin Railroad Commission and the Wisconsin Tax Commission, to the engineer of which, Professor W. D. Pence, the author wishes to express his thanks for placing these at his disposal. Others have been devised by the writer 268698 as the result of upwards of fifteen years' experience. After a short chapter devoted to the cost of appraising a property, the value of Good Will and "Going Concern Value" are defined and discussed, and the opinions of Commissions, Courts, and individuals given at some length. Much space is devoted to depreciation, as it is felt that engineers are more in doubt on this point than on any other question connected with valuation. Especial attention is called to methods suggested for calculating depreciation and to the compound interest tables for use in calculating sinking funds, present values, etc. This chapter is followed by one in which amortization is discussed, another on the handling of depreciation funds and a short chapter on appreciation. Franchises are given considerable space, and a study of the court decisions quoted will, it is hoped, go far toward elucidating this very troublesome subject. Capitalization and control of public utilities are given short discussions, the whole being completed by quotations in full of some of the more important decisions of the courts, and the syllabuses of many others of only slightly less value. No excuse is offered for the large number of quotations from court decisions and from other papers, scattered throughout the book, for it is a part of the plan, where possible, to fortify each statement with a judicial ruling. It has been the author's intention to bring together in one volume the gist of all important rulings bearing upon the subject of valuations, so that the layman may have access thereto and learn where they apply. There is a large amount of literature hidden away among the papers of the technical societies that bears directly on the subject, and a considerable amount of writing on appraisals will be found among the reports of the various commissions having control of public utilities. Abstracts from both of these sources have been used liberally. The author desires to express his acknowledgment to Mr. T. Commerford Martin for many valuable suggestions. HORATIO A. FOSTER. MARCH 1, 1912. TABLE OF CONTENTS Overcapitalization - Depreciation-Franchises-Prices paid for orig- inal plant too high - Promoters expected to make their profits on manipulation of stock Watered stock and bonds - Physical property worn out Reorganizations continued - Public Utilities Commissions Fair physical value — No issue of new securities Receiverships found necessary - Indeterminate fran- chise - Appraisals of physical property - Physical valuation of Buffalo property by B. J. Arnold Cost to reproduce new - Fran- Value, definition of - Market value - Taxable value - Commercial PAGES - upon original cost-Cost of new article formerly added directly Basis of reasonableness of rates must be fair value of property - Company entitled to fair return on value of property used — Public not entitled to demand more than services are reasonably worth-Cost of reproduction must be considered in a way humanly possible - Valuing at present date must include all appreciations Conceptual starting plant must be reduced by depreciation Overhead charges - Heavy construction in hands of general contractor - Engineering and supervision treated as overhead charge-Organization expense-Organization, admin- istration, brokerage, emergency items, contingencies - Legal expense Engineering includes architecture and engineering, supervision, etc. Interest during construction Taxes and insurance during construction - Brokerage and discount - Per- centage to be added for underestimating - Public service com- missions say bond discount must not be charged to construction - Company cannot capitalize discount - Capitalizing discount on stocks wholly indefensible — Overhead charges on New York Subway equipment - Overhead charges on original value of Rates of overhead charges, Milwaukee Three- cent Fare Case - Overhead charges in same case by M. E. Cooley – Overhead charges on valuation of Michigan railways by M. E. Cooley-Scrap or salvage value- Scrap value same as junk value, salvage value greater than that for junk-Wearing or service value - Remaining service value-Cost of reproduction one way of ascertaining present value Present value may be wearing value with appreciation added - Present value is the worth at time of appraisal - Present value demanded by courts for sale to municipality - Intangible value — Development expense includes all expenses incidental to building up the corporation - Franchise - For taxing corporations - For regulating rates For the issuing of PAGES |