This example indicates the existence of non-physical values, not only positive in the case of Road "A," but also negative as to Road "B."
Many properties have been built in the United States, representing large investments of capital, which are not, and some of which can never be, profitable business investments. In all such the physical valuation will exceed the final value where the property is considered as an operating concern, and a negative factor to cover improper location, uneconomical design, ill-advised investment, or whatever the trouble may be, should be applied.
The physical property is that which enables the corporation to do business. Without physical property it could not produce the commodity which it sells. The amount of money actually invested in acquiring that physical property represents the measure of capital on which it is morally entitled to earn interest and profit; and, in the stage of promoting and financing the enterprise, all hope of earnings is based on the amount of money required to construct the property. These considerations lead the writer to contend that the true method of valuing a corporate property is first to determine the cost of reproduction of the property and its depreciation, and modify this figure by any applicable positive or negative non-physical elements of value.
[3]. The term "present value," as used in this paper, should not be confounded with its use by bankers or accountants, or with the present worth of a sum of money due at some future time.
[4]. In this case, traffic as to Line "B" is limited, and as it is feasible to double-track Line "A" at less cost than Line "B," no advantage can be assigned to Line "B" on account of development of future business.
The Michigan State Appraisals.
Organization.
The State Legislature of Michigan, at the session of 1899, passed an act creating a Board of State Tax Commissioners and outlining and prescribing their duties. This act authorized the board to "inquire into and ascertain the value of the property of corporations paying specific taxes under any of the laws of this State."
The object of this valuation was to determine the rate at which the corporations were paying taxes, to the end that necessary laws should be passed so that all taxable properties in the State might be taxed uniformly.