704 ECONOMICAL ASPECTS 



and dividends which are paid on the securities of the company to 

 the stockholder and bondholder and which are essential to make 

 future issues marketable, but we are dealing with the actual costs 

 to the utility of placing its securities in the hands of the public. 

 This cost of securing the money should be distinguished from pro- 

 moters' services and from bond discount. The latter is an 

 adjustment between the amount paid by the public for the bond 

 and its face value, due to the difference of the interest rate of the 

 bond and the interest rate prevailing at the time of the sale of the 

 bond, and it may occur a number of times during the life of the 

 corporation. The cost of securing money is a very different thing, 

 and only comes once when the original capital is acquired. That 

 such costs are legitimate and must be recognized cannot fairly 

 be denied. The existence of numerous banking and brokerage 

 houses specializing in public-utility securities shows that it costs 

 to secure money just as to purchase generators, cable, land or 

 any of the tangible construction elements of a property. 



The losses incurred in the sale of securities, that is, brokerage 

 and discounts, should, of course, also be included. 



The development expenses will sometimes amount to as high 

 as 20 per cent of the cost of the physical plant, depending, of 

 course, on the attractiveness of the undertaking and the rate at 

 which the securities can be disposed. 



Physical Costs. Thes* should cover the actual costs of con- 

 structing the plant, including material, apparatus and labor. 

 The cost of each unit of the plant elements in its final position is 

 composed not only of its first cost but of all other items of expense 

 which are necessarily involved. These may be any or all of the 

 following: Freight, storehouse cost, inspection, assembling or 

 fitting, transportation from storehouse to work and distribution, 

 labor of placing element in position, transportation of men and 

 tools to work, lost time of men during travel or wet weather, 

 losses on tools and material. After the cost has been estimated 

 as closely as possible it has become an accepted rule to add a 

 general percentage of the same to cover contingencies, omissions 

 and errors. This percentage is frequently estimated as 10 per 

 cent and sometimes higher, depending on the uncertainties 

 involved in the proposition. 



The physical equipment includes: 

 Land and water rights. 



