The valuation of railroad property in New Jersey is further complicated by the requirements of the State Tax Law, which specifies that the value of the remaining property, including the franchise, shall be determined after the "true value" of the real estate and tangible personal property have been determined. The speaker will not attempt a discussion of franchise values, as it is a subject which requires the most profound study. The author states that he is appalled at the speaker's misconception of the method of determining non-physical value used by Professor Adams in Michigan. The speaker is perfectly familiar with that method, and, although having the greatest respect for Professor Adams' opinions, is compelled to draw attention to two important elements of that formula which are open to objection. Professor Adams establishes his annuity on the depreciated value, rather than on the cost, or the reproduction cost, which, in the speaker's opinion, does not determine the proper annuity or reasonable fixed charges to be deducted from net income before net surplus is established. Bonds are generally sold at a considerable discount, and represent the full cost plus this discount, consequently, the interest on bonds or fixed charges will be greater than an annuity established on cost, "reproduction cost," or "present value." Would it not more nearly establish fixed charges or annuity, to take the cost plus discount and commissions as the basis on which to apply the annuity rate? While Professor Adams' formula establishes a larger net surplus for capitalization than the method suggested by the speaker, he in effect destroys this net surplus by charging against it all betterments chargeable to income. It is quite clear that this gives the railroad company a chance to absorb all net income into betterments, and thus wipe out all net income, in which case there would be no net surplus to capitalize, consequently, no non-physical or franchise value, and the total value established under this plan would be less than if the property had not been improved by the betterments—_reductio ad absurdum_. In reference to the question of whether or not the method of valuation should be the same, regardless of the purpose to which the value is to be applied, the speaker cannot agree with the author, and believes that it is quite consistent to establish different values for different purposes.