property as a whole, each is a factor in making the success of the undertaking to an extent not measurable by definite figures. Thus,

"The property to be taken, both plant and franchises, are to be appraised, having in view their value as property in itself, and their value as a source of income. The physical property has value irrespective of the franchise, and the franchise without reference to the physical property. But these two kinds of value practically shade into each other." 1

"The value of the physical elements of corporations, or business property, is made up largely of those which are invisible. Sometimes the value of the latter exceeds that of the former in that, were the two separated, the visible things in the disorganized condition would be worth less than half the value of the property in use as an organized enterprise." 2

The present misunderstanding of this question is further increased by the attempts made by appraisers themselves to find the present value of the property; in other words, to usurp the functions of the court or commission. Experts are to present to the court or commission certain figures, which were recapitulated in Chapter I, and that tribunal and that tribunal alone is to determine "with sound and well informed judgment," the true present value, and, in the true present value, they have ruled that they will include what seems to them to be the value inherent in the plant as a live plant furnishing service and earning money. They will not attempt to attribute values to definite factors analytically determined but to the operating plant as a whole, to the plant as a going concern.

For the sake of clearness in presentation we have spoken of "going value" as one of the factors tending to give life to the plant and have shown how this factor is in

1 Kennebec Water District v. City of Waterville, 54 Atl. 20, (1902). 2 Chicago and Northwestern Railway Co. v. The State (1906) 128 Wisc. 617.

reality the cost of producing or reproducing the business as distinguished from the plant. This "going value" is but one element of the value inherent in the plant, of its value "as a going concern." As just defined the 'going value" is capable of definite determination by the expert and must be made by him a figure to be presented both with the original cost and with the replacement cost. The "value as a going concern" or, as it has been termed throughout the present study, "the value of the live plant," in order to avoid the ambiguity liable to arise from the use of such similar expressions, "going value" and "value as a going concern," is to be determined by the Court upon well informed judgment based upon the varied sets of figures presented by the appraisers.

65. Practical usefulness of methods of determining value in live plant. — In the first portion of the present chapter a number of methods were described which have been used in important appraisals. It is to be noted that they varied widely from each other and would have produced divergent figures. It is of interest to note that, while each method has had its advocates, still each method has been held by other experts, and in some instances by the courts, to be unreliable. It now remains to be shown that each method is productive of figures which have their own logical and proper value as evidence when taken in connection with the figures which Mr. Justice Harlan has ruled are essential for the information of the court in making a decision as to the true present value of a property.

Original cost was one of the figures to be presented by the experts. This figure should not be the original cost of the plant alone but the cost of the plant plus what it had cost the undertaking to acquire its business. This latter cost, carefully determined and from which all improper expenses have been excluded, is as much a

part of the original cost of the property as the original cost of the physical plant itself. This cost, the capitalization of losses, as determined by the method employed by the Wisconsin Commission, when added to the original cost of the plant is one figure to be presented. It is not the true value inherent in the live plant any more than the replacement cost is the true value of the physical property. It is simply evidence, presented to the tribunal for what that tribunal may consider it to be worth.

Another figure to be presented is the present cost of reproducing the property. The cost of a new plant would be the replacement cost of the existing plant. But the replacement cost of the physical plant represents in most cases but a portion of the reproduction cost of the property. It would take time and money to bring a new plant into the productive condition of the existing property. The cost of reproducing the business must be added to the replacement cost of the plant to give the reproduction cost of the property. This cost of reproducing the business must be determined by the method described above under the heading "Reproduction of Net Earnings." The reproduction cost of the property, as thus formed, does not show the true present value nor is the figure, designed to show the cost of reproducing the net earnings, a criterion or even a measure of the value inherent in the live plant. These three figures, replacement cost, reproduction of net earnings and their sum are simply further evidences for the use of the court or commission in forming its judgment as to the fair present value of the property.

Another figure to be presented is the commercial value as shown by the capitalization of net earnings. This is the figure which appeals most to the business man and is offered with the others, as evidence of value, for the consideration of the court. Thus,

Capitalization of income, even at reasonable rates, cannot be adopted as a sufficient or satisfactory test of present value. But while not a test, present and probable future earnings at reasonable rates are properly to be considered in determining the present value of the system."

Another figure to be presented is the par value of stocks and bonds. Some of these securities may not be representative of a dollar actually paid into the capital of the undertaking. Some of them may be common stock issued to assure the sale of other securities. It matters not why or how the securities were issued. The court or commission must have these figures to add to its information concerning the case.

Another figure is the worth of the service to the user. As will be shown later, the value of the service to the community is based largely upon what it would cost the public to construct a new plant and acquire the business of the original undertaking. The cost of reproducing the plant and business is the reproduction cost of the property described above. In addition to this the public has been relieved by the undertaking from the risk originally incident to the development of the enterprise. Some additional value should be given to the property for this reason and the method termed above "Capitalization of Profits" offers the means of determining what this increment may be. This figure is presented with the others for the consideration of the court, as evidence of the true present value of the property.

CHAPTER V

VALUES OF GOOD WILL AND FRANCHISES

66. Good will and franchise values attributes of value inherent in live

plant.

67. Good will.

68. Franchise - General consideration.

69. Value of franchise in case of sale.

70. Value of franchise in cases involving the equity of a statutory rate. 71. Value of franchise in valuations for taxation.

66. Good will and franchise values attributes of value inherent in live plant. In the last chapter it was explained that, while there was admittedly a value in many operating undertakings over and above the value of the physical plant alone, difficulties were met when an attempt was made to consider such value analytically and assign values to supposed constituent attributes. The full significance of this was seen from the fact that doubt was expressed whether even value as a "going concern," the most unquestioned attribute of a live property, could be included in a valuation made for the purpose of determining the equity of a statutory rate. As will be shown presently, this possible value has been reduced still further by the definite exclusion of the values possibly attributable to good will and franchise rights.

In view of the impossibility of experts assigning definite figures to values inherent in a live plant, it is not necessary to enter into an extended discussion as to the reasons why the factors, good will and franchises, considered alone, have been excluded as incapable of being assigned definite values. A few only of the rulings bearing upon these so-called intangible assets will be presented.