Abstract The article demonstrates that the current procedure of estimating asset life for depreciation purposes is inadequate and advocates the use of the entire probability distribution of asset life. After reviewing certain current depreciation procedure, it discusses the probability-life approach to depreciation and its implications for the inter-temporal allocation of depreciation expense. The effect of depreciation adjustment under both the traditional mean-life and probability-life approaches is analyzed. Criteria that can be used to choose between mean-life and probability-life are then discussed. Finally, consideration is given to the application of the probability-life concept to group depreciation and also to accelerate methods. The article also says that the choice of a depreciable life for an asset requires an estimate of the length of time that the asset will provide its services to the company. Since an uncertain future is being estimated, one is faced with the problem of estimating the probability distribution of the asset life.

Richard S. Bower, Frank C. Jen, Session Topic: Problems and Progress in the Application of Recent Developments in the Theory of Finance: Discussion, The Journal of Finance, Vol. 24, No. 2, Papers and Proceedings of the Twenty-Seventh Annual Meeting of the American Finance Association Chicago, Illinois December 28-30, 1968 (May, 1969), pp. 339-344

In this paper, we present a new version of the capital asset pricing model CAPM) that provides a linear pricing equation substantially different from that implied by the traditional CAPM of Sharpe [18], Lintner [12], and Mossin [14, 15] (hereafter SLM model). It is assumed that each of the investors has an initial endowment of real resources (say, corn) which can be either consumed invested in investment opportunities available to the investor. A set of simultaneous equations is derived from the model. The set of equations determines the equilibrium values of these interdependent endogenous variables: the amount to be consumed by the investor; the proportion of each investment project be owned by the investor; the amount to be invested in each of the available investment projects; the market value of each project; the market price of risk; and the return imputed by the capital market for a risky project which has a zero-beta risk. If a riskless project exists, the zero-beta rate is just a risk-free rate.