F.s'Gixr.r.RixG COST sri'nirs 9 



Id hear in niiiid that tlu> fliniiiiatioii of poles rontaiiiiii^; (inilitT 

 (lolVrts 4>f Olio kiiiil or anoihcr iiUMiis that wi- arc adding soniclhiii); 

 to the llrst cost of our poles and the criterion must always he whether 

 or not liic ciiniinalion of tlies*.- defects will snllicicnlly proioiij; the 

 life of the poles to w.irranl the incre.isi-d first cost. 



I'here ha\e now heen |)laci-d hefore yon several exaniples of proh- 

 lenis occurring in the telephone industry in the solution of wlmh 

 enj;inivring cost studies may he advantageously em[)l()yed, and, 

 prohahly, enough has heen said to make clear the importance of 

 this form of economic anaKsis. 



Factors Hnti:rin(. into Axmal Costs and Tiii:ir 

 evaliation 



Let us now consitler together the principal factors entering into 

 aiuuial cost, and how, in the course nf our work, wc ov.iluate them. 



The several factors are these: 



1. Cost of money. 



2. Ta.ves. 



'.i. Insurance. 



4. Depreciation. 



5. Current Maintenance. 

 <). Administration. 



7. Operating Costs. 



Cost of Money. The operating companies of the Bell System 

 ohtain the new money that they use in e.xtensions to their plants 

 from the sale of their capital stock and securities — bonds and notes. 

 Such a return must be paid the investor, by the Company, as will 

 induce a constant flow of new capital into the business. This steady 

 influx of new capital is required because the System can not decline 

 to expand. It is obligated to meet the increasing needs of the public 

 it serves. Its need for new capital is a direct result of public demand 

 for the service it renders. The rates for service which public utilities 

 may charge are regulated by the commissions, l)ut neither the com- 

 missions nor the utilities can fix the worth of money. Public utilities 

 must pay the cost of money just as they must pay the cost of labor, 

 poles and other material. No investor can be forccfl to invest. If 

 the rate is below what money is worth in the general money market, 

 he will keep out. Utility companies must bring their offerings to 

 a general money market anfl submit them, in open competition, with 



