10 BELL SySTEM TECHXIC.IL JOIRX.IL 



the offerings of iinik-riakiiigs of f\iT\- kind n-(|iiiriiig rapii.il. Tlu're 

 arc two \va\s of ueiiint; now nioiu'\-: 



1. IVom iiut-siors williiiii to li-nd. Tliese are tlie l)oiul and note 



hokiers. 



2. 1-Voni imestors \\illiii.u to lun-omc i)artners in ow iicr>lii|). Thesi- 



are the stockholders. 



\c)t oni\- do stockholders expect a higher return than bond and 

 nnic- holders, hut if the stockholders' earnings are insufficient, the 

 bond in\esior will take his money to some safer market. Taking 

 into account the ratio which must be prudently maintained between 

 funded debt and stock, a proper figure should be obtained as re[)re- 

 scnting the average annual cost of money. This figure shoidd not be 

 confused with the figure that represents a fair rate of retin'n includ- 

 ing a margin for surplus and contingencies. 



Taxes. Taxes are levied by various governmental botiies, munici- 

 pal, county, state and federal, on many different bases. In some 

 specific plant problems, taxes ha\e to be computed to meet the con- 

 ditions of the case at hand but, in general, it is sufficient to employ 

 a percentage charge for taxes based upon the average experience. 



Insurance. In the case of buildings, and equii)ment contained in 

 buildings, an annual cost item to cf)ver insurance should be included. 



Depreciation. Depreciation ma\' be defined as the usini; u|) of 

 property in service from all causes. These causes include: 



(a) Wear and tear, not co\cred by current repairs. 



(b) Obsolescence. 



(c) InadefiuacN'. 



(d) Public Requirements. 



(e) Extraordinary Casualties. 



.All Iflcphoni' propertx', e\rr])l Kind, is sulijert to deterioration, 

 and the continued consnnijjtion ol the inxesinH'nl is a part ot the 

 cost of the service which must Ik- pro\ ided for !)>• charges against 

 earnings. Only a small portion of the i)lant actually wears out in 

 service. Instances of this are llu- rotting of poles and the rusting of 

 iron wire, a relati\ely small amount of which is used in the plant. 



( )n the oilirr hand, it h.is licc-n I he liisiorx' of the telephone business 

 that enormous amounts of |)lant ha\e been taken out of str\-icc 

 through no defect in their plnsical comlition but lither because 

 they had become obsolete through the <le\elo[)menl of some itiore 

 economical or efficient type of c(iiii|innnt, or because they had 

 become inadequate to serve the growing needs of the business. 



