COST OF POWER 743 



The second item under the fixed charges is taxes and insurance. 

 The amount necessarily depends on the rates available, but, for 

 .estimating purposes it is common practice to allow J per cent of 

 the physical cost for each, making a total of 1 per cent. 



Depreciation is the loss in value which occurs during the period 

 which the property is in service, either due to wear and tear or 

 obsolescence, and a certain sum of money must be set aside 

 annually for renewing this property. There are different methods 

 of providing for depreciation, but the sinking fund or annuity 



TABLE LXIV 



method is best applicable to public utility properties. It pro- 

 vides for setting aside each year a sum that, invested in a certain 

 rate of interest compounded annually, it will equal the cost of the 

 property, less its scrap value, at the end of its assumed life. Thus, 

 if a certain portion of a plant costs $10,000 and has a life of ten 

 years, with a scrap value of 10 per cent or $1000, and it is desired 

 to set aside such a sum that, at 5 per cent interest compounded 

 annually, will accumulate an amount equal to the cost, less the 

 scrap value, at the end of the life period, it will then be found, by 

 referring to an annuity table, that $9000X0.0795 or $715.50 

 annually will produce the required amount. As the life, as well 

 as the scrap value of the different elements varies to a consider- 

 able extent, the depreciation should be figured separately for each 

 item, and thereafter averaged. 



The useful life of the plant apparatus or equipments is purely 



