CO129-376 - Governor Sir Lugard - 1911 [3-4] — Page 571

558

16:

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opened line is always heavy) amount only to $182,000. Of this $82,000 represent the fixed charges, while $100,000 are variables. The former charges are constant within limits and practically the same for a line of 22 miles in length as for one of ninety, while the latter are more or less directly proportionate to the length of the line. There appears to be no reason why the working ex- -penses on the Chinese Section should be greater in proportion than on the British: and your wages bill should be less than ours as prices are higher in Hongkong than in Canton. Assuming, there- -fore, that your supervision amounts to the same as ours but that your variable charges are four times as great, we estimate that your working expenses would be $482,000 and ours $182,000. Adding to these figures $100,000 for depreciation account to China and $25,000 to ours, we get the figure 8582,000 as your working expenses plus depreciation and $207,000 as ours. Sibstituting these figures in the previous example, the following results:-

Chinese Sec.

→tion.

British Sec-

-tiam.

Gross earnings. Working Expenses.

..8985,500

$470,850

.582,000

207,000

Net earnings.

.8403,500

$263,850

2.8 %

2 ec. I

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Return on Capital.......... 2.7 %

The result is slightly in favour of the British Section but, as the calculation is based on too low an estimate of the capital cost of the British Section, the increase which must be made in that figure will reduce the return on the British outlay to a considerably lower figure than the return on the Chinese outlay. If, on the other hand, the rates of 90 cents

and 30 cents proposed in your memorandum were accepted, while the percentage of return on capital as regards the Chinese Section would remain unchanged at 2.7 per centum, the percentage as regards the British Section would fall from 2.8 per centum to 1.35 per centum. Thus:

Gross