Equipment Rates from Revenue Requirements

Abstract

The revenue requirements method which is used by utility companies for determining rates is applied to the problem of determining rates for construction equipment. The method follows engineering economy principles and explicitly considers operating costs, recovery and return of capital and income taxes. By expressing the result as the required before‐tax revenue that a piece of equipment must generate, the method is intuitively appealing and easily comprehended by management. The example uses both Canadian and American income tax legislation.